4  AFFORDABILITY

In many cases affordability is the key factor in determining if or not a project can proceed to full procurement.  It is vital that procuring authorities are realistic about what is affordable and the variables which combine to determine affordability.  It is also important that the Authority and all relevant stakeholders fully understand the answers to the following questions:

1.  What is the absolute level of funding that the Authority is willing to invest in the project.  Although this may be reviewed

2.  What are the "must have" or "fundamental" objectives of the project which need to be delivered within the constraints of the available funding;

3.  Which objectives, if any, can be sacrificed or compromised in the event that bids from the private sector are unaffordable?  How are these prioritised?

Authorities should be aware that it is difficult to achieve all of the following:

•  Improved performance;

•  A strict performance monitoring and payment regime;

•  Reduced cost;

•  Investment from the private sector; and

•  Avoidance of redundancies.

The SBC must be as realistic and prudent and possible in assessing what the key objectives may cost.  A procurement based on an aspirational service level while existing service levels are constrained by existing budget availability is unlikely to be achievable without a significant amount of additional funding. The business case must make clear how any affordability gap will be bridged.

For Local Authorities the Affordability section must comply with the Prudential Code as it applies to the Authority's financial framework.

•  Provide an order of magnitude estimate for the investment based on previous experience or similar projects.

•  Provide an estimate of the returns/value for money of the investment compared to potential alternatives.

•  Is provision for the project in the current spending review allocation?

Additional questions include:

•  What is the organisation's financial position and can it commit to a substantial fixed payment commitment over a substantial period of time?

•  How sensitive is the affordability position to fluctuations in levels of increases in the Council's main revenue streams?

•  What resources are available for the project?

•  Can the budget holder, the organisation or external funders support the project?

•  Are there any Revenue or Capital constraints that may affect the investment?

•  Are there Statements of support from key stakeholders?