A key objective of most governments in implementing PPPs is to achieve value for money in providing needed infrastructure. 'Value for money' means achieving the optimal combination of benefits and costs, in delivering services users want. Many successful PPP programs require an assessment of whether a PPP is likely to offer better value for the public than conventional public procurement-often called 'value for money analysis'. A value for money comparison can be done for a specific proposed PPP project. It can also be done at a program level, for projects with common characteristics. For example, the United Kingdom Treasury's manual on assessing value for money [#237] described how value for money should be assessed at both the program and project levels-but that methodology was later considered biased and recalled by government.
Value for money (VFM) analysis typically involves a combination of qualitative and quantitative approaches. Qualitative VFM analysis involves sense-checking the rationale for using PPP-that is, asking whether a proposed project is of a type likely to be suitable for private financing, and whether the conditions are in place for the PPP to achieve value for money-for example, that the PPP has been structured well, and that competitive tension is expected. This often takes place at a relatively early stage of PPP development- as such, qualitative VFM analysis may constitute part of the PPP 'Screening' described in Section 3.1.2: Screening for PPP Potential.
Some PPP programs also require quantitative assessment of value for money. This typically involves comparing the chosen PPP option against a 'Public Sector Comparator' (PSC)-that is, what the project would look like if delivered through conventional procurement. This comparison can be made in different ways. The most common is to compare the fiscal cost under the two options-comparing the risk-adjusted cost to government of procuring the same project through traditional procurement, to the expected cost to government of the PPP (pre-procurement) or the actual PPP bids (post-procurement). An alternative is to compare the two options on an economic cost-benefit basis-that is, to quantitatively weigh the expected benefits of a PPP over conventional procurement against its additional costs.
Value for money analysis-particularly the use of quantitative 'public sector comparator' methodologies-has been subject to wide debate. Some question the value and relevance of a PSC approach, which can appear to be more 'scientific' than is actually the case, potentially misleading decision-makers; or conversely, may simply come too late in the process to be a genuine input to decision-making. A World Bank report on Value for Money [#293] analysis presents evidence on practices from several countries, and on trends regarding the scope of value-for-money analysis and the relative advantages of quantitative and qualitative approaches.
For more discussion on approaches to assessing value for money, and their relative advantages and disadvantages, see also:
• Farquharson et al's section on 'selecting projects' [#95, pages 41-43], which briefly describes value for money and cost benefit analysis, and considers the value of qualitative versus quantitative approaches
• Grimsey and Lewis's article on PPPs and Value for Money [#119, pages 347-351] includes a section on 'approaches to value for money', describing examples of different countries' approaches
• The OECD's publication on PPPs [#194, pages 71-72], which also describes the range of methods used by different countries, on a spectrum of complexity, from simply relying on competition, to full cost-benefit analysis of different procurement options
• The World Bank toolkit for PPP in Roads and Highways has a section on value for money and the PSC [#282], which describes the logic behind value for money analysis, and how the PSC is used.
The remainder of this section briefly describes and provides further resources for readers on qualitative and quantitative value for money assessment methodologies.