3.9  Value for Money (VfM) Analysis

Within the context of PPPs, VFM Analysis can be summarised as the process of developing and comparing the Project's total costs, under the two delivery models: conventional procurement and PPP. VfM only exists when the risk adjusted costs of the PPP option are less than risk adjusted costs of conventional procurement. This can be measured in two ways - a Qualitative and a Quantitative Assessment, both of which the PPP Project Team is expected to perform in order to assess VfM with an objective and comprehensive manner. In order to achieve this, sequentially, the PPP Project Team is advised to:

  Carry out a quantitative VfM assessment:

•  Create a Base Case Model (BCM), which reflects the cost of traditional procurement to the government;

•  Develop a risk adjusted BCM, which adds the weighted cost of each risk to the BCM , and functions as the Public Sector Comparator (PSC);

•  In parallel, develop the PPP model(s), which accounts for the required payment to be made by the government to the private partner - depending upon the payment mechanism - the costs of the private sector during construction and operation, required equity return, financing structure, etc.; and,

•  Perform the quantitative assessment, which compares the net present cost of the risk-adjusted BCM to the governments with the net present cost of PPP option.

•  The Contracting Authority will need to use a discount rate to estimate the net present values for the VFM assessment. The Contracting Authority should consult DoF for the discount rate to be used for each particular project,

  Carry out a qualitative VfM assessment, which outlines the benefits of procuring the project as a PPP following consultations with key Stakeholders; and,

  Compare quantitative results of different procurement options along with the qualitative aspects that each option provides.