7.28 Quantitative appraisal is an important part of the overall consideration of how to deliver a project. Each option should be costed as accurately as possible using outturn data. Where there is uncertainty about inputs, or outputs are highly sensitive to the input variables, it is important to improve the confidence of these wherever possible, but also importantly to undertaken appropriate sensitivity and scenario analysis.
7.29 The current approach to appraisal of PFI sets out that qualitative considerations - viability, desirability, achievability - should frame the approach to the quantitative assessment. The intention is that the quantitative assessment should form part of the overall value for money judgement rather than be seen as a stand alone pass/fail test; neither the quantitative or qualitative assessment should be considered in isolation. The NAO has, in the past, expressed concerns that too much weight is given to the cost modelling assessment4; they have put considerable emphasis on the fact that financial appraisal is just one part of the overall assessment of the contracting approach, and have sought to discourage appraisers striving for disproportionate levels of accuracy.
7.30 The previous government sought to address this by developing a simpler quantitative assessment tool reflecting a more proportionate approach to quantitative assessment, with the intention of allowing alternative delivery routes to be chosen at the outline business case stage if these were deemed to offer better value for money. In practice, however, the quantitative assessment tool has encouraged procuring authorities to compare a PFI solution against a conventionally funded - and in some cases undeliverable - alternative, rather than consider alternative contracting approaches. All too often it has continued to be interpreted as a pass/fail test with insufficient weight given to the qualitative judgements.
7.31 The Value for Money Assessment Quantitative Assessment Tool5 will be withdrawn from 5 December 2012. Procuring authorities should continue to undertake appropriate quantitative assessment, in accordance with the principles set out in the Green Book, supported by in depth consideration of the qualitative factors that influence the choice of contracting route. Further advice about how to apply the Green Book principles when selecting a contracting option for a project, and the relationship between the economic and commercial cases of a business case, will be provided in the updated value for money guidance.
_______________________________________________________________________________________________________________________________________________________________
4 National Audit Office, Private finance projects, October 2009
5 HM Treasury, Value for money quantitative assessment tool, December 2011 (http://www.hm-treasury.gov.uk/infrastructure_ppp_vfm.htm)