A. At the Second File, the Work Team shall undertake a qualitative VFM assessment with respect to public finance management. The purpose of the qualitative analysis is: Provide, in qualitative terms, how the Privatization option provides value for money when compared to the public sector procurement option.
B. Identify, compare and discuss the key drivers of value for money for the Project. These key drivers will later form an integral part of the quantitative analysis in the Third File.
As part of the analysis, the Second File shall provide examples of challenges and issues that have impacted projects historically under public sector procurement and how these issues and challenges will be addressed as part of the Privatization option. One of the key areas of analysis and discussion will be around risk allocation across the different options.
The qualitative analysis shall address the following areas:
A. What are the project's main characteristics that could lead to value for money under the preferred procurement option and why (e.g., scale, scope, whole life costing approach, delays, cost overruns, etc.). The analysis shall be supported by examples of previous projects and an identification of the key drivers of value for money. In addressing this, it may consider the areas set out in Table 1 below, or other factors as applicable.
B. Although the assessment is based on the proposed risk allocation (Part 11 Chapter 4 of this Manual), it also provides an explanation and assessment of how this allocation will result in value for money.
Table 1 - Qualitative Analysis
| Area for consideration and discussion |
VIABILITY |
|
Efficiency | • Is the private sector able to exploit economies of scale through the provision, operation or maintenance of other similar services to other customers (not necessarily utilizing the same assets)? How will this be achieved contractually and what is the impact on the cost structure? • Does the private sector have greater experience/expertise than the Entity in the delivery of this service? Are the services non-core to the Entity? |
DESIRABILITY |
|
Risk Management | • Bearing in mind the relevant risks that need to be managed for the program, what is the ability of the private sector to price and manage these risks? |
| • |
Risk management | • With consideration to the relevant risks that need to be managed for program implementation, what is the capacity of the private sector to manage and assess the magnitude of these risks? |
Participation | • Is there an opportunity to participate in finding solutions or providing services? • Can the private sector improve the utilization of the assets on which the project is based (such as sale, licensing, commercial development for the use of third parties, etc,)? And how is that done? |
Contract duration and residual value | • Can service demand be reasonably predicted for the future? • What is the expected life of the assets, taking into consideration the number of major asset upgrades or refurbishments during the contract or the design life of the asset? • What are the advantages and disadvantages of a long contract length? • Are there constraints in using the assets after the contract ends? • What are the envisaged arrangements for the asset at the end of the contract period or its useful life? |
Lifecycle costs | • Is it possible to integrate the design, build and operation elements? • Are there significant ongoing operating costs and maintenance requirements? Are these likely to be sensitive to the type of construction? |
Design integration | • To what extent does design integration impact on VFM? How will this be realized? |
Whole life costing | • What and where is the scope for whole life savings? What are the maintenance costs? • Do these have any environmental impacts or other impacts (e.g., more energy efficient buildings)? • Do the proposed risk allocation incentivize the correct behavior by the bidders? |