The first step for conducting a quantitative VFM assessment is to develop a PSC financial model. The objectives of the PSC are:
a) To provide an insight into the costs, income and risks over the project life if the project were performed using traditional public procurement; and
b) To use it as a benchmark to compare with, initially, the Privatization option being proposed and eventually with the bids received as part of the Privatization procurement process. The results of the comparison will show a) whether VFM is achievable through a Privatization and b) whether the preferred bid(s) result in better value for money when compared to a public sector procurement.
A PSC is an estimate of the whole-life or baseline costs of the project from the government's perspective, if the project were to be implemented through a traditional procurement route, taking into account any income that would be received by government in this circumstance. These costs and income should reflect the achievement of the same results as expected from the private sector under the Privatization contract. The comparison of the public sector and Privatization solutions will not be valid if two sets of costs reflect different performance levels.