In NSW, for likely PPPs, a preliminary Public Sector Comparator (PSC) and a Shadow Bid Model (SBM) are to be developed during the Business Case and Procurement Strategy phases, unless otherwise agreed by NSW Treasury. At this stage, comparing the PSC and SBM help to inform the likely value for money drivers and the likelihood of achieving value for money in the case of PPP procurement.
The National PPP Guidelines provide detailed guidance on constructing PSCs for social infrastructure. Consistent with these Guidelines, a risk-free discount rate should be used in calculating the PSC. Responsible Agencies should contact NSW Treasury to obtain the appropriate risk-free discount rate for social infrastructure PSCs.
A PPP SBM is the Responsible Agency's best estimate of a private party's bid price (in net present value/cost terms) to deliver the output specification under a PPP project structure. The SBM, should reflect a private party's costs and debt and equity structure, and the Project Deed terms (including the payment mechanism).
After a project is approved for PPP procurement, the PSC and SBM are to be fully scoped and updated, consistent with the terms of the RFP, draft contract and output specification.
The PSC is a mandatory requirement.
The SBM is also a requirement unless otherwise determined by NSW Treasury.
The PSC and SBM require a high level of technical expertise in project costing, financing and risk analysis. NSW Treasury is responsible for advising agencies on the development of PSCs and SBMs, including the discount rates. Responsible Agencies should engage various technical experts to advise on capital and operating cost estimates as well as any revenue estimates. Given estimates are subjective, they should be verified through benchmarking analysis, independent or other checks. Stress testing of model robustness and key assumptions should be conducted.
Both the PSC and the SBM are dynamic and should be updated as new information is received but should be finalised prior to or soon after the RFP release, if disclosing model information to bidders (refer also to section 6.7.2). The PSC and/or SBM should not be changed after the opening of bids unless there is an obvious significant error or new information impacts on the estimated forecasts. Any such changes should be documented.
During PPP procurement the PSC and/or SBM are used to assist in evaluating and interrogating the reasonableness of the bidders' financial models. The discount rate applied to the bids is the same discount rate applied and used in the PPP SBM, being the Project Internal Rate of Return of the SBM. The SBM may be used as an indicator of affordability.
Value for money is determined by evaluating and comparing the price and non-price aspects of the bids (refer section 6.7.5).
Responsible Agencies should consult with NSW Treasury immediately if at any time affordability issues are likely to arise.
The results of the PSC and/or SBM should be summarised as set out in Appendix 2: Fiscal Impact Tables and Negotiation Parameters.