26 The quantitative assessment at Stage 1 requires the VFM financial model5 developed by Treasury and Partnerships UK to be populated. Further guidance on the model and populating the model is provided in 'HMT Quantitative Assessment User Guide6. DASA-DESA and the MOD PFU can assist project teams in undertaking the quantitative assessment.
27. The VFM financial model provides a comparison between the risk-adjusted net present value (NPV) of the best value for money conventionally procured option that uses public funding and a PFI option. The model involves a number of simplifications, reflecting the inherent uncertainty surrounding some of the input values and therefore does not include some elements that one would normally expect to see in a conventional procurement or PFI cost estimate. The model is intended to provide a good estimate rather than an exact comparison of the value for money of the conventional procurement and PFI options.
28. The project team will need to undertake an investment appraisal to determine the best public sector conventionally procured option for use in the VFM financial model. DASA-DESA will be able to offer project teams assistance with this.
29. The project team is required to input to the VFM financial model estimates of:
∙ The whole life costs of the conventional procurement, including capital, lifecycle and operating costs;
∙ The whole life costs that would be borne by a PFI provider, including capital, lifecycle and operating costs;
∙ The PFI company's debt service costs (interest rates etc);
∙ Optimism bias;
∙ Risk transfer;
∙ Transaction costs.
30. The project team should note that the VFM financial model cannot be used to assess affordability or generate a shadow unitary payment due to differences in methodology and coverage. Affordability is assessed through use of a reference model - see paragraph 69.
_________________________________________________________________________________________________
5 The VFM Financial Model will provided to project teams by MOD PFU