3. MOD PFU should be contacted before commencing any VFM Review MOD manages a number of Public Private Partnerships (PPP), defined by HM Treasury1 as a "collaboration across the private-public sector interface involving collaborative working together and risk sharing to deliver policies, services and infrastructure.", and Private Finance Initiative (PFI) Contracts. MOD needs to be satisfied that the price for any PPP/PFI Contract represents good Value for Money (VFM) for the provision of services throughout the contract term. The HM Treasury document managing Public Money (2007) defines value for money as "securing the best mix of quality and effectiveness for the least outlay over the period of use………value for money will involve an appropriate allocation of risk." Value for Money Reviews therefore involve an evaluation of the price of the service, the amount of risk transfer achieved and the ability of the Service Provider to provide a service that meets the quality required. This is supported by NAO guidance2 which suggests that achieving value for money means obtaining an optimal balance between cost, quality and flexibility.
4. Most PFI contracts contain HM Treasury standard value testing mechanisms of Benchmarking and Market Testing to ensure VFM throughout the life of a contract but a number of MOD PFI contracts contain provisions in relation to VFM Reviews. This guidance is solely for those PFI contracts which include a VFM Review clause.
5. Whilst the VFM Review clause in MOD contracts give some details of the contractual arrangements for undertaking the review, they do not identify the internal procedures that must be undertaken. The purpose of this guidance note is to provide MOD acquisition teams with the detailed steps required to complete the VFM Review. MOD PFU should be contacted before commencing any VFM Review.
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1 Report by HM Treasury: Infrastructure procurement: delivering long-term value (2008) available at www.hm-treasury.gov.uk
2 Report by NAO: A Framework for evaluating the implementation of Private Finance Initiative projects (2006) available at www.nao.org.uk