11.2.1  Financial adviser terms of reference (example)

The [insert name of financial adviser] constructed the PSC financial model under the following terms of reference. These were to:

•  carry out discounted cash flow analysis of the raw costs, competitive neutrality adjustments and risks associated with the reference project and incorporate these into a financial model using the most recent software available;

•  construct and refine the PSC financial model throughout the PPP procurement process;

•  plan and coordinate the collection of all quantitative data necessary to undertake the analysis outlined above, including data inputs provided by, among others, the Procuring Agency, [insert name of technical adviser] and the [insert name of health provider];

•  document all PSC input assumptions, including but not limited to raw costs, competitive neutrality adjustments, and risks in a databook containing (as a minimum) the following information:

(i)  source of input assumption;

(ii)  date on which input information was provided;

(iii)  reference document;

(iv)  sign-off classification;

(v)  further actions necessary (if input assumption has not been signed off);

•  produce PSC financial model outputs consistent with the information requirements of the PSC and, in particular, numerical and graphical reporting on the following outputs;

(i)  a summary cash flow for each component of the PSC;

(ii)  the NPC of each component of the PSC discounted according to government methodology for deriving discount rates under the PPP;

(iii)  the results of the risk evaluation;

•  plan and coordinate the collection of all information requirements to refine the components of the PSC, including discussions and structured workshops between the Procuring Agency, [insert name of health provider], advisers to the project team and all other the key stakeholders;

•  verify and confirm key project stakeholders;

•  carry out sensitivity analysis on key inputs to the PSC financial model, including the discount rate, inflation rate and major raw cost categories;

•  carry out risk analysis on the PSC financial model using either the simple or the advanced valuation technique and the terms of reference for risk valuation. The technique chosen for a particular project should be discussed with key stakeholders and the financial adviser to determine the most appropriate method;

•  use an advanced risk valuation software, for example @Risk, or an equivalent software package for the advanced risk valuation;

•  document operating instructions for using the PSC financial model; and

•  review all assumptions with the technical adviser and client regularly throughout the PSC development.

The terms of reference for developing individual elements of the PSC are set out in the following sections.