Guidance notes - Terms of reference

This section outlines, in general, the scope of work required to compile the reference project, the raw cost estimates, competitive neutrality and risk evaluation for the PSC. It details the most appropriate people to undertake the estimate for each item and the recommended level of detail that should be provided to model the PSC.

The raw cost estimates are derived from the assumptions used for the reference project. The raw cost estimates should reflect the assumptions used for the reference project and any changes to the reference project should be reflected in changes to the cost estimates and to the associated risk estimates.

Part One of the Public Sector Comparator Guidance provides detailed guidance on determining the most appropriate risk valuation technique (see section 6). It explains and provides examples of both the simple and the advanced valuation technique. It also states that the technique adopted for a particular project or a particular risk depends on the significance of the project and the complexity of the risks within it.

When selecting a risk valuation technique, factors to be considered include:

•  the relative impact of the risk on the project;

•  the size of the project; and

•  the complexity of the project.

For example, a relatively simple project such as a hospital car park is unlikely to warrant sophisticated advanced probability valuation techniques, whereas a more complex project, such as a hospital, may warrant such analysis.  This should be a considered process, however.  Even a hospital car park project may be structured to transfer significant usage risk to the private sector.  It may be advisable to carry out a probability analysis on the volume projections for this risk.  Advice from technical and financial advisers should also be sought and options discussed and agreed with other key stakeholders which may include the Relevant PPP Authority as appropriate.