New VfM assessment guidance

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     Scottish Executive

 Value for Money Assessment
     Guidance for PPPs
        The New Guidance
 Aims
   Provide understanding of reasons for selection
    of particular investment route
   assist understanding VFM factors and
    methodology for PPPs
         - PPP or CONVENTIONAL
 Ensure consistency application of VfM
  assessment across public sector
 Previous PPP VfM assessment process

 Green Book appraisal - quantitative focus
 Point Estimates – PFI vs Public
  Procurement Cost (late assessment)
 Reviewed by SE at FBC
 Limited review of wider VfM factors
       What led to new guidance?
   Revisions to HMT Green Book
   Reports by NAO & Audit Scotland
   PFI – Meeting the Investment Challenge
   HMT VfM Assessment Guidance
AIM of HMT – update / overhaul processes
AIM of SE – adopt for Scottish PPP context
New Treasury VfM guidance (2004)
 PPP only one of a number of options
 Only use / proceed with where
  appropriate & VfM
 Assess VfM early in process and
 Qualitative & Quantitative assessments
abcdefgApplication of VfM guidance to
 SE VfM guidance builds on familiar processes:
 Option Appraisal (Green Book etc)
 How to Procure – Scottish Procurement Manual
 If potential for PPP, consider potential benefits of
  PPP route
 Apply new VfM Guidance (SE application note)
    Overview new VfM Guidance
Initial PPP Suitability Test
Stage 1: Programme Level Assessment
Stage 2: Project Level Assessment
Stage 3: Procurement Level Assessment
 Qualitative and Quantitative elements
 Use of Evidence and Judgement
PPP Consideration checklist
1. Is there a major capital investment requiring management
   of delivery and construction
2. Is there evidence that the private sector can deliver this
   project / programme and that it is likely to be VfM
3. Is the service capable of being defined in Service Outputs
4. Is a whole life costing possible
5. Confirm that procurement costs are not disproportionate
   to total costs
6. Is there a technology stable market
7. Confirm that planning for asset use over long term has
   been conducted
8. Confirm that appropriate incentivisation for the private
   sector to perform has been considered
 Stage 1 - Programme Level
       Stage 1 - Programme Level
 Programme = portfolio sharing common
 Undertaken Centrally / Departmental level
 Assess high-level “qualitative” strategic issues
     Viability / Desirability / Achievability

 “Typical” project assessed quantitatively
        Stage 2 - Project Level
   OBC stage to procurement start
   Project team test (or retest) specific project
   Qualitative & Quantitative assessments
   Reliance on judgement and evidence bases
   Importance of assessing / valuing risk
   Affordability assessment crucial
   Stage 3 - Procurement Level
 Ongoing VfM assessment from OJEU stage to
  financial close (Project Team)
 Repeat Qualitative Tests
 Adequate competition & proper process key
 Focus on affordability
 Risk-sharing deliverable?
 Plus…
 Final quantitative test of Reference
 Final financial test of PPP VfM against cost of
  public procurement
    Consider alongside qualitative assessment – don’t view
     in isolation
    Provides clear audit trail
    No reconciliation to previous stages
    No set level of headroom
         Recap of the Process
Initial PPP consideration
Stage 1: Programme Level Assessment
Stage 2: Project Level Assessment
Stage 3: Procurement Level Assessment
 Qualitative and Quantitative elements
 Use of Evidence and Judgement
abcdeApplying the New Guidance and
            wider relevance
 All Scottish PPP projects
 As of now
 Particular link to Spending Reviews and
  Infrastructure Investment Plans at
  Programme level