There are a number of ways in which the short term cash cost of contracts could be reduced, but which are likely to have a longer term adverse impact on the overall cost of projects. Two of these are briefly described below:
(i) Extension of Project Term - the public sector could agree with private sector contractors to extend the period of the contract, in exchange for a reduction in the annual unitary charge. The cumulative nominal unitary charge payable against the project clearly will increase and in net present value terms (NPV) is likely to lead to an increase cost to the public purse.
(ii) Back Ending of Debt - agreement with project financiers to defer interest and / or capital repayment over the short term and repay the greater rolled up level of debt that would result later in the project. Such deferred repayment would require an increase in the unitary charge later in the project that is likely to outweigh, in NPV terms, the short term unitary charge savings.
Given the negative overall VfM affect of these approaches, we have not considered them any further.