A proposal is value for money if it achieves the required project outcomes and objectives in an efficient, high quality, innovative and cost-effective way with appropriate regard to the allocation, management and mitigation of risks. Value for money takes into account quantifiable and non-quantifiable benefits, costs and risks. It balances whole of life costs against a range of outcomes, including the suitability and quality of goods and services, financial benefits, risk exposure, timeliness of outcomes, and social, environmental and industry impacts.
While a flexible approach to assessing value for money is needed given each project and proposal will need to consider unique issues and risks, the assessment should clearly connect with the evaluation criteria used to assess and compare tenders. Consideration will likely be given to the following non-price related factors such as:
• quality of all aspects of the proposal, including achievable timetable, clearly stated proposal objectives and outcomes, detailed and appropriate commercial and/or contractual documentation (including service scope and key performance targets), and a clearly set-out process for obtaining environmental, planning and other required approvals
• optimal risk allocation and contractual or other risk mitigation strategies (noting quantifiable risks should be taken into account when assessing the price aspects of the proposal)
• ensuring bidders have a sound understanding of the risk allocation and they can demonstrate the capacity to manage the risks
• consideration of risk mitigation strategies (for example insurance, self-insurance, and further due diligence) to determine if these are appropriate and comprehensive as part of determining if the value for money assumptions are likely to be realised at completion of the project (see section 6.5.5.2)
• innovation in service delivery, infrastructure design, construction methodologies (including impact on community) and maintenance
• non-quantifiable benefits gained (economic, environmental (including climate and sustainability), and social outcomes, where they align with Government priorities, policies or programs) and costs incurred3
• any time benefits that would not otherwise be achieved; and
• in the case of contract variations, competitively tendering aspects of the proposal where feasible or likely to yield value for money.
In addition, evaluation of value for money will include, but not be limited to the following quantitative analysis and/or assessment of price:
• interrogation of the Proponent's financial models to determine the reasonableness of any infrastructure, land acquisition, service, and maintenance cost estimates; and
• if relevant, revenue estimates (including the appropriateness and acceptability to the NSW Government of any user fees or prices, and reasonable estimates for forecast quantity levels).
The evaluation of value for money should also consider, where applicable, the factors and requirements under an EPP Direction (or subsequent directions of the same or similar nature).
This evaluation may include the use of independent experts or valuers, benchmarking analysis, sensitivity testing, and where appropriate, the use of comparative financial models like PSC or SBM, based on a reference project and consider:
• an appropriate return on the private sector's investment
• formal risk adjustment of the cost and revenue estimates, including exposures to financial risk where appropriate
• the amount of any contingency provision, particularly in the case of infrastructure related proposals
• ensuring there is no double-counting for risk adjustments across each of:
- the individual cost line items (or revenue line items)
- an appropriate rate of return; and
- the amount of the contingency provision.
Prior to the appointment of a preferred bidder, the Responsible Agency should settle any outstanding material issues relevant to the evaluation through a Q&A process. A Best and Final Offer (BAFO) phase for the evaluation is preferred to not be used, unless absolutely necessary.
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3 Noting Responsible Agencies should seek to quantify these benefits and costs where possible, and at minimum identify and compare unquantifiable benefits and disbenefits including the timeframe for benefit realisation (e.g. front loaded, or whole of life). Measures that address environmental outcomes, such as integrating energy efficiency, renewable energy and reducing carbon emissions, may have higher up-front costs but may deliver net savings over the life of the asset, and may be possible to quantify. These should be appropriately identified and forecast during the evaluation in accordance with cost-benefit analysis principles.