Business cases for each investment proposal are prepared against standard guidelines (usually published by a Treasury), which facilitates the state making investment decisions on an 'opportunity cost of capital' basis. This basis recognises that the state is faced with finite resources that it needs to ration, and target its highest priority areas that will make the greatest impact on the quality of services to the community.
The absence of a robust and comprehensive business case is problematic for the government (and Owner). Without the analytics of a business case, dimensioning the costs, risks, scope and benefits of the investment proposals the Owner is not in a position to benchmark the project deliverables that the alliance has been engaged to deliver. This is particularly exacerbated in the absence of price competition (as the ICAC quote included further below reinforces).
Moreover, the business case is used as an anchor point for the Owner to ensure cost, time and quality constraints are managed. The absence of a robust business case introduces a flexibility for scope growth and budget drift that may not be supported by the Owner. Whilst the government may support a particular investment proposal with a capital component priced at (for example) $200 million, it may wish to support other investment proposals if this price was to increase, as per Key finding 1, to $300 million (i.e. the 'opportunity cost of capital' approach). A material misalignment between the business case project budget and the TOC will be a significant issue for the government and Owner.
In its Guidelines for managing risks in direct negotiations, published in May 2006, the NSW Independent Commission Against Corruption (ICAC), mirrored these concerns when it wrote in relation to both joint ventures and relationship contracting (page 18):
Before signing a contract with the proponent, the agency should satisfy itself that, in the absence of competitive bidding, the price paid by or to the proponent is consistent with market values.
In Appendix 2 of its Guidelines, ICAC also writes in relation to some of the probity risks associated with alliance contracting and the absence of an acceptable business case:
reliance on a non-adversarial approach to conflict resolution and a 'best-for-project' approach....may lead to the parties forming too close a relationship. This may in turn lead to 'capture' by the private sector proponent/s and a failure to consider the overall public interest. Capture can also be a problem if the 'partnership' is lopsided to the extent that the agency develops a dependence on the proponent/s for information and advice.
Alliancing is designed for complex projects with unpredictable risks, and this does not align well with any loose and sloppy practices; nor with taking the line of least resistance.
Therefore, it is of paramount importance that the VfM proposition is articulated in a robust and comprehensive manner in the business case, clearly and transparently analysing all the project's material costs, risks and benefits.