4.3 Components of the Raw PSC

The Raw PSC represents the base cost to government of producing and delivering the Reference Project. The PSC is forecast using real cash flows with an appropriate indexation to address inflation and any other relevant escalation factors. The Raw PSC comprises the following components:

• direct costs: costs that can be traced, or assigned to a particular service;

• indirect costs: other costs incurred that are not directly related to the production of the services. These are costs that contribute to the production of a service, but are not incurred exclusively for that one service; and

• less any identifiable third-party revenue.

Figure 4-2 provides an outline of the process of calculating the Raw PSC.

Figure 4-2 Steps in calculating the Raw PSC

It is important to cost the Reference Project fully when constructing a PSC so it can be evaluated on a stand-alone basis. To do this requires a comprehensive and realistic estimate and allocation of all direct and indirect costs.

Expected cash flows for the Raw PSC need to be forecast over the life of the Reference Project. Therefore, it is important to fully understand the method of delivery under the Reference Project to identify the nature and timing of all key costs.