3.10  Other items

Some other issues to clarify include:

•  Transaction costs. Transaction costs can be significant in PPP projects. Bidders also face transaction costs which can run into millions of dollars. Although these costs are significant, they should not be included in the PSC. The PSC should only include estimated transaction costs directly relevant to government's delivery of the reference project.

Note that while transaction costs are not included in the PSC, agencies should ensure that project funding includes cover for project transaction costs in addition to the preliminary PSC. The issue of additional transaction costs associated with the PPP process should be considered as part of the procurement decision stage of the project.

•  Sunk costs. These are costs which have been incurred prior to the decision to proceed with the project and are not recoverable in the event that the project does not proceed. These should not be included in the PSC cash flows.

•  Efficiency gain. In constructing the PSC, the agency should forecast costs as realistically as possible, taking into account the actual efficiency levels it expects to achieve. Having done so, the agency should not apply any further budget sector-wide general productivity savings. Achievable efficiency gains should already be captured in the agency's forecasts.

•  Residual value. A PPP project will have a defined term - perhaps 25 years. For consistency, the PSC needs to be analysed over the same term. If facilities or equipment acquired under the project have value beyond the end of the term, and the PPP contractor is to be paid a residual value at the end of the term, this should be reflected in a 'residual value' forecast in the PSC.