PUBLIC PRIVATE PARTNERSHIPS
TABLE OF CONTENTS
1. INTRODUCTION & OVERVIEW 2 APPENDIX 1 – QUANTIFYING RISK 33
A1.1 PHASES FOR GATHERING AND REFINING
2. OVERVIEW OF THE BUSINESS CASE 3 INFORMATION 34
2.1 PURPOSE OF THE BUSINESS CASE 3 A1.2 EXAMPLES OF GRAPHICAL REPRESENTATION
OF RESULTS 38
3. DEVELOPMENT OF THE PPP BUSINESS
CASE (STAGE 3) 4 APPENDIX 2 – PPP MODELS 41
3.1 PRELIMINARY ASSESSMENT 4
APPENDIX 3 – EXAMPLE OUTPUT
3.1.1 Technical Solutions and Project Delivery Options 4
3.1.2 Assessment of likely value for money 4
3.1.3 Business Profile 5
3.2 PROCESS 7
3.2.1 Formalisation of the Steering Committee and the
Government Project Team 7
3.2.2 Development of a Project Plan 7
3.2.3 Development of an Output Specification 8
3.2.4 Development of the Reference Project 10
3.2.5 Development of the PPP Project 12
3.2.6 Completion of Risk Analysis and Development of a
Risk Allocation Matrix 13
3.2.7 Market Sounding 14
3.2.8 Completion of the Public Interest Assessment 15
3.2.9 Completion of Environmental, Cultural Heritage,
Native Title and other specialist studies 17
3.2.10 Completion of Employee, Employment and Skills
Development Assessment 17
3.2.11 Development of the Public Sector Comparator (PSC) 17
Frequently Asked Questions 21
Common Problems in Constructing and using the Public Sector
3.2.12 Development of the Partnership Model 23
3.2.13 Value for money assessment of Project Delivery
3.2.14 Compilation of the PPP Business Case 31
3.2.15 Consideration by Cabinet 31
1. INTRODUCTION & OVERVIEW
Queensland’s Public Private Partnership Policy –
Achieving Value for Money in Public Infrastructure and
Service Delivery – was launched in September 2001. This
Policy is a key strategic initiative that supports the
Queensland Government’s central economic objective of
achieving high and sustainable levels of economic growth
and employment by providing efficient and effective
services and infrastructure. The objectives of
Queensland’s Public Private Partnership (PPP) Policy are
• deliver improved services and better value for money
through appropriate risk sharing between Public and
Private Sector parties;
• encourage Private Sector innovation;
• optimise asset utilisation; and
• integrate whole of life management of public
This document forms part of a suite of Guidance Material
developed and issued by the Infrastructure Partnerships
Taskforce (IPT) within the Department of State
Development, in collaboration with Treasury. The
Guidance Material will assist in providing practical
guidance on key technical issues that arise from the
development and implementation of PPP Policy in
The Guidance Material comprises the Overview, the Value
for Money Framework and a range of other Supporting
Documents that provide further detail on specific aspects.
• Risk Management;
• Project Resourcing;
• Probity and Process Governance;
• Contract Development and Management; and
• Business Case Development.
This document should be read in conjunction with the
other Guidance Material, as relevant information in the
other documents is not duplicated here. This Guidance
Material may be supplemented over time by the release of
further Supporting Documents.
This document provides additional detail to the Business
Case Stage as initially set out in the Value for Money
Framework. For ease of cross-reference, the numbering of
specific elements of the Business Case has been
maintained between documents.
• development and refinement of a Reference Project,
2. OVERVIEW OF THE BUSINESS
PPP Project, PSC and Partnership Model to gain a
CASE detailed and rigorous understanding of the Project
Delivery Options likely to deliver value for money. This
Business Case Development (Stage 3) builds on the work development will be informed by the development
undertaken as part of the Preliminary Assessment (Stage and refinement of:
2). Stage 3 develops a comprehensive Business Case that
– the Risk Allocation Matrix;
analyses each of the Shortlisted Project Delivery Options
in further detail. – Market Sounding;
The level of detail required for this Stage is much greater – Public Interest Assessment;
than that for Preliminary Assessment. The extent to which
– environmental planning, Cultural Heritage, Native
each of the elements in this process need to be
Title and other specialist studies; and
undertaken will depend on the specific Technical
Solutions and Project Delivery Options being considered. – Employee, employment and skills development
It should be recognised that where the Project Delivery assessments.
Options involve private financing, the analysis will be
• determination and development of a procurement
inherently more complex. However, where non-private
method that can be utilised to maximise the potential
finance Project Delivery Options are under consideration,
for a value for money outcome. The procurement
a rigorous analysis is still required. This includes a similar
method will ensure that the process is competitive
level of financial and technical analysis of the Reference
and consistent with probity requirements.
Project, PPP Projects, PSC model and Partnership Model
as outlined in this document.
2.1 PURPOSE OF THE BUSINESS CASE
The purpose of the PPP Business Case Development Stage
(Stage 3) is to:
• identify the Project Delivery Option most likely to
provide the best value for money outcome;
• provide information regarding the Project Delivery
Options, sufficient to enable the CBRC and Cabinet to:
– determine the preferred Project Delivery Option;
– make commitments regarding funding of the
These goals are achieved through:
• more detailed examination of potential Technical
Solutions and Project Delivery Options, including
those identified and carried forward from Preliminary
• ongoing and iterative qualitative and quantitative
assessment to ensure the selected Project Delivery
Option meets the service requirement and delivers
best value for money;
• development and refinement of an Output
Specification that details the service requirement and
delivers opportunity for a value for money outcome;
Partnership Models for each option. By qualitatively
3. DEVELOPMENT OF THE PPP
assessing the value drivers, it should be possible to focus
BUSINESS CASE (STAGE 3) in on a single Project Delivery Option as the most likely to
deliver value for money on a quantitative basis.
3.1.2 ASSESSMENT OF LIKELY VALUE FOR MONEY
3.1 PRELIMINARY ASSESSMENT 126.96.36.199 VALUE DRIVERS
During the development of the Preliminary Assessment, If a project is to be taken forward as a PPP then it must be
the foundation of the Business Case Development Stage demonstrated that the recommended Project Delivery
will have been laid out and normally includes: Option is likely to deliver better value for money than the
alternative, traditional means of delivery. This means that
• determination of the priority and initial affordability of
the PPP must be capable of generating potential efficiency
savings when compared to traditional delivery options.
• determination and preliminary assessment of the
Efficiency savings can be realised by accessing value in
range of Technical Solutions and Project Delivery
the following key drivers:
• Risk Allocation – There is scope to achieve savings
• qualitative assessment of likely value for money.
through optimal risk allocation between Government
3.1.1 TECHNICAL SOLUTIONS AND PROJECT DELIVERY and the Private Sector. The PPP Project Delivery
OPTIONS Option, through the allocation of risks to those parties
best able to manage them may enhance the likelihood
When undertaking the development of the Business Case, of a better value for money outcome.
agencies should be mindful that the level of information
and analysis required must be sufficient to enable the • Whole of life Costing – Integration and synergy
CBRC and Cabinet to: between the design, build and service operation can
promote whole of life cost savings. These savings are
• determine the preferred Project Delivery Option; and likely to be greater where the project is characterised
• make commitments regarding funding of the potential by a higher operational content, providing incentive
project. for the Private Sector to achieve whole of life cost
This does not mean that every identified Technical
Solution and Project Delivery Option needs to be analysed • Innovation – The robust competitive tender process
to the same degree. The level of analysis required to and output-oriented service specifications of a PPP
establish which Project Delivery Option is likely to deliver creates an environment conducive to innovation.
best value for money is extensive. It should be possible to Innovation may be as simple as designing 45 degree-
discount options early on in the process without fully angled window sills to discourage people from putting
developing PSCs and Partnership Models to prove the objects on the sill, in order to reduce cleaning costs.
case. Innovation may also be as complex as the
introduction of innovative proprietary water treatment
It is therefore suggested that as part of the Preliminary technologies previously considered too risky to
Assessment (Stage 2), the number of Shortlisted Technical operate by a water authority.
Solutions are kept to a minimum. The number of Technical
Solutions taken forward into the Business Case (Stage 3) • Improved Asset Utilisation – The PPP Delivery Option
will of course be determined on a project-by-project basis, may promote more intensive use of assets. Additional
but it is recommended that a maximum of two or three revenues may be accessed from shared use of
should be considered further, except in very large and/or facilities and sale of spare capacity.
complex projects. In most cases it should be possible to • Economies of Scale – The PPP Delivery Option can
review the Preliminary Assessment (Stage 2) and simply result in economies of scale, where a service provider
focus on the single most desirable or practical Technical is able to increase the volume of services provided
Solution. from an existing resource base. For example, a service
Similarly, the number of Project Delivery Options will be provider may increase the output from an existing
determined on a project-by-project basis but it is commercial cook/chill facility to service a PPP
recommended that, except in very large and/or complex developed hospital or school.
projects, a maximum of two or three Partnership Models • Competitive process – While the individual value
should be sufficient. It should be possible to develop the drivers are able to generate potential value for money,
PPP Project by discounting those ProjectDelivery Options the ability to undertake a competitive process is a key
that are unlikely to meet with Government’s objectives or requirement in delivering a value for money outcome.
fail the public interest test. This will reduce the As such, it is important to understand the viability of
unnecessary time and expense spent in developing a the project from a market perspective. Sufficient
numbers of market players and an overall degree of outcome. The analysis undertaken during this stage will
project interest are required to maximise the also set the benchmark and parameters for the ability to
deliverability of value drivers listed above. deliver the project through a competitive process in
subsequent stages, should a partnership approach be
Empirical evidence from similar projects may assist in
most likely represent best value for money.
estimating the impact of these value drivers.
Further information regarding qualitative and quantitative
188.8.131.52 VALUE ANALYSIS
assessment is covered in Section 3.2.13 of this document.
The value for money analysis is focused on these value
drivers as the sources of efficiency savings. These savings 3.1.3 BUSINESS PROFILE
counter balance the additional procurement costs and
The Business Profile is a useful tool to assist through the
financial premiums associated with the PPP Delivery
remainder of the project. It is a brief, plain English project
summary that encapsulates all of the key elements of the
Broadly, the initial analysis that must be carried out on project. The Business Profile will be prepared at the
these value drivers as part of the Preliminary Assessment commencement of the Business Case Development stage.
and Business Case Development is:
The Business Profile should include an outline of:
• Qualitative assessment of the objectives, service
• the service requirements;
requirement and proposed structure of the project to
establish whether there is likely to be sufficient scope • stakeholder requirements;
for the Private Sector to access and exploit the value
• viable Technical Solutions and Projects Delivery
• Quantitative assessment, based on sensitivity and
• qualitative analysis of the Project Delivery Options,
scenario modelling on the Partnership Model, to
indicating a likelihood of achieving a value for money
establish the likely cost (in NPV terms).
184.108.40.206 QUALITATIVE ASSESSMENT
• expected requirements for environmental, planning,
During the Preliminary Assessment Stage qualitative Cultural Heritage, Native Title and specialist technical
analysis will be undertaken of the various Technical studies that may be required to inform the project;
Solutions and Project Delivery Options. The purpose of the and
qualitative assessment is to subjectively test whether the
objectives, service requirement and proposed structure of • Preliminary Risk Allocation.
the project are likely to provide the Private Sector with The Business Profile is a useful synopsis of the key
sufficient scope to access and exploit the value drivers. elements of the project, and should be kept up to date as
Throughout Business Case Development it is important further analysis is undertaken during the Business Case
that those Project Delivery Options being considered Development Stage, to ensure that it remains a relevant
undergo repeated qualitative assessment to ensure they synopsis of the Project. It is then used as a Project
remain consistent with the service requirement and Management tool, for the reminder of the project, and a
remain likely to represent a value for money outcome. key informer for those coming to the project fresh. It will
also form one of the elements from which the Market
220.127.116.11 QUANTITATIVE ASSESSMENT Sounding and Project Brief will be developed.
Quantitative assessment of the identified Project Delivery
Options is undertaken to identify the Project Delivery
Option most likely to deliver a better value for money
• Private finance premium
• Bid costs
• Whole life costing
• Risk transfer
• Asset Exploitation
• Economies of Scale
FORMALISATION OF THE
AND THE GOVERNMENT
DEVELOPMENT OF A
DEVELOPMENT OF THE PPP BUSINESS CASE, INCLUDING;
• Development of an Output Specification
• Development of the Reference Project
• Development of the PPP Project
• Completion of risk analysis and development of Risk Allocation Matrix
• Market Sounding
• Completion of the Public Interest Assessment
• Completion of the environmental, Cultural Heritage, Native Title and
other specialist studies
• Completion of the employee, employment and skills development
• Development of the Public Sector Comparator (PSC)
• Development of the Partnership Model
• Value for Mmoney assessment of Project Delivery Options
COMPILATION OF THE
PPP BUSINESS CASE
CAN THE PROJECT
BE RESCOPED TO IMPROVE
no not proceed
BY CBRC at this time
project does not priority
proceed at this time
PPP likely to deliver PPP not
value for money value for money
Figure 1 – Key elements of Business Case Development (Stage 3)
3.2 PROCESS Planning and Management is a key mitigation strategy
against process risk. The development of the PPP
The development of the Business Case is a detailed Business Case is a highly interrelated activity and, as
extension of the work undertaken in the Preliminary such, an effective Project Plan that is well understood by
Assessment Stage. While the following steps are the Government Project Team is essential.
presented in a linear manner, the reality of their
achievement is much less sequential and more iterative. A well-developed Project Plan ensures that realistic
The elements of the Business Case are developed timetables, resources and budgets are allocated to the
iteratively to allow for ongoing review and assessment. project. The plan is best developed in broad terms at the
Step-wise assessment ensures that the project retains its Preliminary Assessment (Stage 2) and refined in more
focus on the service requirements and that the chosen detail at the commencement of Business Case
Project Delivery Options are those most likely to deliver Development (Stage 3). This should be done concurrently
value for money. As a result of the iterative development with Project Resourcing to ensure the two activities are
of the Business Case many elements will be developed consistent.
contemporaneously, with the information generated in The key elements of Business Case Development (Stage 3)
one place required to inform and refine a number of other are illustrated in Figure 1. The illustration headings are for
elements. reference purposes only. In practice, the activities
3.2.1 FORMALISATION OF THE STEERING COMMITTEE described will need to be developed iteratively.
AND THE GOVERNMENT PROJECT TEAM Integration of technical and financial analyses is vital to
ensure the preferred Project Delivery Option is both
The Project Resourcing Supporting Document provides technically sound and deliverable.
detailed guidance on Project Management Structure and
The Business Case is developed around the PSC and
Procurement of Specialist Advisers.
Partnership Model. These models require development of
3.2.2 DEVELOPMENT OF A PROJECT PLAN the Output Specification, the Risk Allocation Matrix and a
detailed understanding of economic and financial issues,
The risk of process difficulties or failures that result in public interest issues, policy implications, employee,
time delay, additional expense or suboptimal outcomes employment and skills development assessment, Native
(Process Risk) is often an underestimated and Title, Cultural Heritage, environmental and other relevant
undervalued element of delivery. Effective Project project impacts.
Business case development timeline
Development of an
Development of the Reference
Risk analysis & Risk
Special Studies – Public Interest, Environmental,
Cultural Heritage, Native Title, Employment, Other
Development of the
PSC & Partnership Model
Value for Money
Figure 2 – Indicative Timeline for Business Case Development (Stage 3)
Figure 2 sets out an indicative timeline that illustrates c) Communications Protocol
how the different elements of the Business Case overlap
Given the sensitivity of many issues encountered in
throughout the duration of the work.
project development, it is important for all parties to
As an indication only, the Business Case Development maintain confidentiality. Key confidentiality issues are
Stage, to the point of submission to Cabinet/CBRC, may as follows:
take approximately 3 to 6 months. This will depend on a
• Public statements should only be made via the
number of factors, including the size and complexity of
Steering Committee and/or Project Director.
the project and the planning and preparedness of the
Government Project Team to undertake the work. • Government Project Teams should explore efficient
and secure media through which to communicate
Elements of the Business Case are depicted in Figure 2.
non-sensitive Project information to stakeholders
The solid lines illustrate how the majority of the work for
and the wider community (e.g., website, press
each element is interrelated on a time basis. Again, the
releases, etc.) All relevant Departmental staff and
elements of the Business Case are not undertaken
Advisers should be made aware of the
sequentially, but in many cases will inter-relate or overlap.
Communications Protocol and its requirements.
It is highly likely that a number of the elements developed
during the Business Case will be further refined and d) Timetable
polished following submission to CBRC/Cabinet. This
A crucial element of Project Planning is the project
process of refinement can continue as appropriate until
timetable. Any project timetable should include the
the commencement of the Binding Bid Stage. It is
specific tasks, anticipated time requirements to
important that the project does not change following the
achieve the tasks, highlighted key milestones,
formal engagement of the Private Sector in the
resource allocation and progress to date.
development of Binding Bids. Should variation be
required at this stage it should be undertaken with a full The timetable should be realistic and, where possible,
understanding of the Probity, competition, market impacts flexible enough to incorporate unforeseen
and process risk to which Government may be exposed. circumstances. It may be necessary to modify or
update the timetable over the course of the project in
The plan will be required to take account of all steps in
order to achieve the key milestones.
the PPP process (Stages 3-6) including consultation,
market sounding and the Government approval process. As with other planning elements, key stakeholders
should provide direct input into the timetabling
The Project Plan should include the following key
A Gantt chart, conscientiously monitored by the
a) Roles and Responsibilities
Project Director (or a nominee thereof) will be an
Clear definition of the roles and responsibilities of the extremely useful tool in keeping the project on track.
all parties including:
3.2.3 DEVELOPMENT OF AN OUTPUT SPECIFICATION
• CBRC and Cabinet;
The Output Specification underpins the entire
• IPT and Queensland Treasury; procurement process. The purpose of an Output
• Line Agency; Specification is to comprehensively and accurately state
the outputs required from the process, i.e., the identified
• Steering Committee; service requirements.
• Evaluation Committee; The focus of an Output Specification is on services
• Government Project Team; required rather than assets wanted, and the service
standards expected by Government, regardless of who will
• Advisers – financial, legal and technical, engaged deliver the services. Output Specifications should be
to assist the Project Team; and clear, unambiguous statements of what is needed, not
• Key Stakeholders. how it is to be provided. It is generally acknowledged that
the development of Output Specifications will require
Where appropriate, these resources should provide significant expertise.
direct input into the planning process in order to gain
a greater understanding of timetables, key milestones, It is important that the Output Specification is clearly
roles, responsibilities and deliverables. defined and quantifiable, as it will become the foundation
for indicators against which performance will be measured
b) Project Probity Plan and payment made. This is necessary in order to achieve a
The Project Probity Plan should be developed in line clear and unambiguous contract structure for the payment
with the Probity and Process Governance Supporting of services and satisfaction of service requirements.
The Agency should be indifferent as to how a particular limit the provision of a service to a timeframe too short to
service requirement is met, provided that the required enable the Private Sector to generate sufficient income to
service standard is achieved in a timely and cost effective present a value for money delivery option to Government.
manner. It may be prudent however, depending on the
For sample Output Specifications refer to Appendix 3.
nature of the project, to ensure that certain minimum
design and construction criteria are complied with, rather Determining the level of detail required in the Output
than rely on payment or penalty mechanisms alone for a specification requires striking a balance between allowing
guarantee of performance. the Private Sector scope to generate a value for money
delivery option through innovation and Risk Allocation,
The team developing the Reference Project should also be
and the complexity of the assessment required to
involved in the drafting of the Output Specification to
determine the best value for money bid. In general, as
ensure that the Reference Project reflects the Output
more detail is added to the Output Specification, the
assessment becomes easier and the scope for innovation
The Output Specification should be drafted in such a decreases. In addition, the opportunity for optimal Risk
manner to ensure that it captures relevant ‘value for Allocation is best achieved at a point part way along this
money’ drivers initially identified in the Preliminary continuum (Figure 3).
Assessment. It would, for example, be inappropriate to
Output Innovation Complexity of Opportunity for Optimal
Specification Assessment Risk Allocation
Minimal detail Maximum Difficult
Completely None Easy Government
Figure 3 – Competing requirements for detail in Output Specification
Take for example an educational facility. At Option A, the specification may contain no more detail than, “a college
for Queensland”. This level of specification provides the Private Sector with significant scope for innovation in
service delivery. However, given the widely variant nature of the bids that are likely to be developed, assessment of
each bid against another and against the actual requirements for the project will be almost impossible at this
stage. This level of detail would also see the Government maintaining significant risk as to the functionality and
consistency with Government’s requirements for core service support.
Conversely, Option C represents an overly detailed Output Specification, including everything down to the specific
screws to be used in the cupboard door. While this level of detail is likely to promise easy comparison between
delivery options, it also will severely limit the opportunity for the Private Sector to achieve an innovative value for
money delivery option. At this level of specification, Government will retain the bulk of the risk associated with the
suitability and functionality of the facility.
Option B, however, represents an Output Specification that presents a balance between these extremes. It
provides specification on what is required in terms of, for example, teaching space and support facilities, but not
information on how such facilities are to be provided. This allows the Private Sector opportunity to deliver an
innovative approach to the ‘how’ of service provision, and give them scope to carry the associated service
provision risks. This level of detail in the Output Specification will allow for a like-with-like assessment of
measurables that Government has established as specific requirements of the project. It also provides significant
scope for effective risk allocation
The Value for Money Framework outlines a number of
items that should be included in an Output Specification.
Additional items also worthy of consideration for inclusion
in a specification are as follows:
Project description Policy outline and contracting requirements statement.
Organisation outline Structure of organisation and project interfaces.
Stakeholder requirements Schedule of stakeholder requirements, for example,
expectations of core service providers.
Scheme Objectives Strategy outlined in preliminary report/Profile Business
Case and purpose of project – What it is to achieve?
Performance standards and monitoring Required operating performance in output terms, with
details of monitoring requirements.
Quality standards Minimum asset quality criteria, codes and standards.
Constraints Constraints essential to an acceptable solution, including
environmental, stakeholder or other minimum
Payment criteria Basis on which payments may be made (availability, use,
flexibility, and performance).
Change mechanisms Provision for change in load conditions, etc.
3.2.4 DEVELOPMENT OF THE REFERENCE PROJECT When developing the Reference Project and PSC, the
Project Team should limit the scope of what is included in
The Reference Project is the most likely and efficient form those activities that form traditional delivery. Other
of Public Sector delivery that the Government would commercial developments should only be included in the
traditionally have used to satisfy all elements of the Reference Project if the Agency has a mandate from
Output Specification. Government to undertake such business activities
The process of formally defining the Reference Project Note that the compilation of a Reference Project for a
should commence after the Output Specification has been social infrastructure project (e.g., prison, hospital) may
developed to an advanced stage. This ensures that the differ in focus when compared with an economic
Reference Project meets the service requirements of the infrastructure project (e.g., water treatment plant, road).
project, and helps to assess the validity of the Output Therefore, the Terms of Reference outlined below may not
Specification. It is sometimes easier to define the Output be applicable to all projects, although the level of detail
Specification after the identification of the required inputs should be taken as a guide irrespective of sector.
for the requisite project services. This does not, however,
imply that the project should be procured on the basis of The type of project may also indicate the most appropriate
those inputs. group of advisors to develop the Reference Project. For
instance, architects may be the most appropriate advisors
The Reference Project then forms the basis for the PSC. As to develop the Reference Project for a serviced
such, it should be updated and refined as issues that accommodation type project, but for an economic
impact on the Output Specification or the expectations of infrastructure project, engineers may be better placed to
the Project are identified. develop the Reference Project.
18.104.22.168 TERMS OF REFERENCE FOR A REFERENCE PROJECT ground conditions. The survey also highlights whether the
The team developing the Reference Project should also be site has appropriate access to services (i.e., electricity,
involved in developing the Output Specification, to ensure gas, water, etc.) that may impact on costs.
that the former meets the latter, and that the PSC is While the terms of reference for a Reference Project will
correctly costed. change on a project-by-project basis, a typical Terms of
Where possible and applicable, a geotechnical survey of Reference is shown below.
the preferred site is recommended for all projects. This
assists in accurately estimating the costs involved in
building on a particular site, taking into account specific
TYPICAL TERMS OF REFERENCE
• Compilation of the Reference Project concept drawings, based on the draft project Output Specifications. The
concept drawing should encompass:
– details of the site and positioning of buildings, plant and machinery
– details of services access e.g., electricity, water, gas, travel plan arrangements, parking, and demonstration
of how the flow around the site will be maintained throughout development
– functional relationships between building areas/process diagrams/road alignments, etc. as required
– scale 1:500 (key areas shown to 1:200)
– drawings to show year by year development including enablers, demolitions, etc., and with complex
interfaces, further detail may be necessary
• Schematic drawings of the key relationships with a macro of key areas at a scale of 1:100.
• Diagram of the functional relationships for the whole project.
• Ground and site conditions based on the site geotechnical survey.
• Estimation of costs involved in providing utility and other necessary services to the site (if applicable)
• Room data sheets are to be prepared for all key service areas (if applicable).
• Process, mechanical, electrical and control diagrams and specifications (if applicable)
• A costs estimate of the net area is to be calculated based on the room data sheets, (if applicable) with an
appropriate industry standard grossing factor applied. Note that the net area usually includes mechanical and
electrical services, specialist equipment and IT costs.
• Prepare a list of the required FF&E (furniture, fixtures and equipment) for the project and an estimation of the
costs of procurement and installation in accordance with the Output Specification.
• Details on the method of construction with a construction programme, development control plan, summary of
construction assumptions and areas requiring special attention, e.g., dewatering.
Given that the raw PSC and the risk valuation process are 22.214.171.124 IDENTIFICATION OF THE SERVICES
developed on the basis of the assumptions underlying the The infrastructure service under consideration comprises a
Reference Project It is recommended that a ‘value’ number of components each of which may be identified in
management exercise be undertaken to check the terms of the function performed. The number of
reasonableness of underlying assumptions/technical components and complexity of the interrelationship
aspects. Any changes to the Reference Project is to be between the components vary according to the specific
fully reflected in the raw PSC cost estimates and the risk infrastructure services. For example, a new road project
estimates. comprises relatively few functional components, (such as
3.2.5 DEVELOPMENT OF THE PPP PROJECT provision of vehicular access and emergency services)
when compared with a new hospital project that requires
The PPP Project is the Agency’s estimate of the most a large number of complex functional components and
efficient Private Sector solution to satisfy the Output services.
Specification. The PPP Project will be similar in form to the
In identifying components of infrastructure assets and the
Reference Project and will form the basis upon which the
relationship between them, the following steps should be
Partnership Model will be constructed.
The spectrum of possible Project Delivery Options
• identify each component by its function;
encompasses combinations of Public and Private Sector
service delivery, ranging from wholly public to wholly • identify sub-components (services) within each
private. The spectrum also includes Project Delivery component;
Options financed by the Public and Private Sectors.
• identify the nature and extent of the integration
The framework for ascertaining the scope of Private Sector between each of the components; and
participation in service delivery and comparative analysis
• identify the integration of all the services with other
of Project Delivery Options comprises the assessment of:
parts of the system (e.g., integration of a hospital with
(i) The Services comprising the infrastructure asset; the health system in Queensland) and other relevant
Agencies and organisations.
(ii) Related Non-Core Services;
As an example, Figure 4 below illustrates the required
(iii) Application of PPP Models which have been
services for sentenced and remand prisoners from the
implemented elsewhere for Private Sector
point at which they are received into a prison through to
participation in the delivery of similar services;
(iv) Risks allocation and commercial structure associated
with the delivery of the services; and
(v) Specific constraints that impede service delivery by
the Private Sector.
Service Requirements Identified
Education & Training
Medical & Health
Figure 4: Prison Project Service Requirements Identified
Within each of the service categories summarised above, 126.96.36.199 LEGISLATIVE/REGULATORY CONSIDERATIONS
there are a number of service requirements (where core The legislative/regulatory framework requires analysis to
services are denoted by the pale boxes). For example, ensure that it permits delivery of the project. One question
accommodation services includes the provision of the of importance that may be asked is, “Does the Agency
infrastructure required to house prisoners, and the have the necessary powers in law to enter into the Project
infrastructure to support the rehabilitation and re- Agreements with the Private Sector?”
socialisation activities for prisoners, an integral part of the
overall case management function. Medical and health In the event that the Agency does not possess sufficient
services comprise the provision of on-site primary and powers to contract with the Private Sector, extension of
secondary medical and health services (e.g., staffing of an such powers or the enactment of enabling legislation
on-site infirmary and the provision of primary mental should be investigated. The Project Plan would need to
health services and drug rehabilitation programmes). incorporate the necessary process and timetable, should
this be required.
188.8.131.52 RELATED NON-CORE SERVICES
Careful consideration of the implications of legislation
Having identified the functional components of the
amendments or regulation required to facilitate or enable
infrastructure assets, issues relevant to any distinction
project delivery is necessary, particularly in terms of the
between Core Services and related Non-Core Services
implications for Government in the delivery of future
need to be considered. PPP projects are likely to include a
projects. This issue needs to be addressed as early as
requirement for a range of services, such as
possible to ensure sufficient time is available for the
accommodation availability, Information Technology
necessary legislation amendment or regulation.
outputs and many other Non-Core Services.
3.2.6 COMPLETION OF RISK ANALYSIS AND
The scope for Private Sector service delivery does not
DEVELOPMENT OF A RISK ALLOCATION MATRIX
include the delivery of core services.
184.108.40.206 APPLICATION OF PPP MODELS Risk is defined as, “the chance of an event occurring that
would cause actual project circumstances to differ from
To analyse and apply each model to the project under
those assumed when forecasting project benefit and costs
consideration, the following steps should be followed:
of that project.” The effective management of risk is
• identify service categories included in the PPP model; critical to the success of a project, and particularly to long-
term projects such as PPPs.
• compare the option of procuring the services from the
Private Sector as part of a PPP, against the option of There exists a need to identify, evaluate and allocate
service provision by the Public Sector; and project risks effectively, regardless of the project
procurement process. A risk allocation and qualitative
• provide the rationale for the grouping of service
comparative analysis is required in respect of each of the
categories (for example, existing interrelationships
Project Delivery Options. Preliminary Risk Analysis and
allocation is likely to have been undertaken during the
To reach an overall conclusion on the merits and Preliminary Assessment. These should be revisited to
suitability of the Project Delivery Option being considered, ensure appropriate and rigorous analyses have been
the following ‘tests’ may be applied: undertaken.
• is the Option considered feasible? For example, if A thorough analysis of all project risks will be required
there are major issues associated with the particular during Business Case Development. As outlined in the
option, can these be mitigated (e.g., through Risk Management Supporting Document, this analysis
contractual measures such as the performance or should commence with Risk Identification. The analysis
payment regime, through the bid evaluation process will, in the first instance, provide information regarding
or through practical measures) the preferred risk allocation for each Project Delivery
• does the Option meet the project objectives identified
by the stakeholders? Further detail on how to undertake Risk identification,
allocation and quantification is contained in Appendix 1 of
• overall Value for Money Assessment (refer to Section
this document. A detailed discussion of project risk and
3.2.13 for further detail)
Government’s likely preferred position regarding each set
The Project Delivery Options determined at this stage will of risks relating to privately financed PPPs is provided in
be refined by the Risk Allocation. the Risk Management Supporting Document. An example
of a Risk Allocation Matrix is provided in Appendix A of the
Appendix B provides a summary and examples of PPP
Risk Management Supporting Document.
models that have set precedent in Australia and overseas.
The next step in Risk Allocation is to compare the • market Sounding should canvass a broad cross
allocation between the different Project Delivery Options. section of the market. Industry representative bodies
During this comparison, any specific issues pertaining to may be a useful vehicle through which market
each Project Delivery Option and the manner by which sounding may be undertaken;
these may be managed or mitigated should be identified.
• think broadly about the project and about potentially
This analysis may include:
interested parties, but also ‘target’ companies that
• analysis of major risks such as scope and design risk, may be interested;
some of which are not able to be quantitatively
• before engaging in discussions with companies,
evaluated, (for example, public interest risks, policy
ensure the aims of the project and of the Market
Sounding are clearly established. It is important to
• consideration of the integration of services, where provide sufficient information about the project to
different services are procured from different service enable respondents to provide meaningful feedback.
providers (as is the case in a mixed service model); As those parties consulted may indeed be potential
and Bidders, it is important that information disclosed is
sufficiently broad to enable respondents to gain an
• consideration of pertinent macro issues such as
appreciation of the project. Information should not be
so specific as to raise concerns regarding Probity. It is
3.2.7 MARKET SOUNDING essential that those consulted are not “spoon fed”
information, but that they “do most of the talking” on
Market Sounding is an important part of Business Case the issues raised through the Market Sounding
Development. The aim of Market Sounding is to: process;
• obtain an understanding of the marketability of the • consider holding a market forum to brief interested
project; parties on the project, its objectives, the service
• highlight potential commercial constraints; requirement, PPP models under consideration and
identified opportunities for added value (such as third
• begin to prepare the market for the project; and
• estimate or confirm the assumptions used to develop
• face-to-face meetings should be arranged with each of
the Partnership Model.
the companies on the contact list. Companies should
The following points should be considered when be informed that the discussions will be informal and
undertaking a market sounding: are not to be regarded as a part of the formal
procurement process that may occur subsequent to
• the exercise must be explicitly carried out on a
without-prejudice basis, and participants must be
made aware that, at this stage, Government has not • if the project involves unusual or groundbreaking
yet approved the project. It is prudent to involve provisions/aspects, be prepared to openly discuss
advisers with prior project experience in Market these if you wish to get meaningful feedback on the
Sounding; market’s likely response;
• clear objectives must be set on what the exercise • keep an open mind and be prepared to listen;
seeks to achieve and the type of information that is to
• respect confidentiality and Intellectual Property; and
be sought (refer to example below for general
objectives); • use this as an opportunity to ‘market’ the project as
MARKET SOUNDING OBJECTIVES – EXAMPLE
• Provide an outline of the project to those likely to bid;
• Gain feedback from interested parties on the project, the process and the commercial structure;
• Gather a wide range of views from those likely to bid;
• Identify issues of concern for the Private Sector, so as to ensure these are addressed in a way that adds value;
• Update the Private Sector on the indicative timetable.
The results of Market Sounding should be evaluated and 220.127.116.11 EFFECTIVENESS IN MEETING THE SERVICE
the Project Delivery Options reappraised at the end of the REQUIREMENT
exercise, as there may be potential implications for the Where there are a number of solutions to service
scope of the project that may need to be revisited. requirements, the delivery of each may impact differently
3.2.8 COMPLETION OF THE PUBLIC INTEREST on public interest. These differences will need to be
ASSESSMENT reflected and evaluated in the ongoing assessments of
the Project Delivery Options throughout the development
Policy and public interest considerations may impact the of the Business Case.
viability of the Project Delivery Options being considered.
The project service requirements defined within the
A preliminary Public Interest Assessment will have been Output Specification should be described in terms of
undertaken for each of the Project Delivery Options during demand, target population/clients, boundaries,
Preliminary Assessment (Stage 2). constraints, etc. Measurement of the effectiveness of a
solution in meeting the service requirement will be
During Business Case Development it is necessary to
achieved by the development of measurement tools such
complete Public Interest Assessment for the Project
as Key Performance Indicators (KPIs), balanced scorecards
Delivery Options, to assess consistency with the public
and performance measures.
interest. This assessment may identify public interest
issues that may impact on the development and delivery 18.104.22.168 IMPACT ON STAKEHOLDERS
of the Project. These impacts may be either qualitative or In order to develop a more detailed picture of stakeholder
quantitative in nature, and will require estimation. Issues needs and their views on the relative merits of the
identified may affect project costs or benefits and proposal, development of the Business Case will require
therefore could have a material affect on the PSC or assessment of the results of stakeholder consultation.
Partnership Model. Generic information that will assist in this process
It is recommended that the Government Project Team includes:
engage with particular interest groups or relevant statutory • the nature of stakeholders;
authorities at an early stage of the project in order to
mitigate the risks relating to these issues. • the direction and magnitude of the impact the project
will have on the stakeholder;
For each Project Delivery Option, the matters given
consideration during the Public Interest Assessment • the type of impact (i.e. income gains, efficiency gains,
should include such issues as: transfers) including details of the distribution of the
• the effectiveness in meeting the service requirement;
• the timing of the impact; and
• the impact on stakeholders;
• differences between the impacts of individual Delivery
• accountability and transparency; Options.
• public access and equity; It may be useful to summarise this information in the form
• consumer rights; of an “Impact Matrix”.
• security; and An Impact Matrix is a mechanism for summarising the
impact of a project on various stakeholders. While
• privacy. preparing an Impact Matrix will assist in identifying types
When assessing public interest considerations, due regard of impacts, additional work is likely to be required to
should also be given to any matters impacting on the adequately define the magnitude of costs and benefits
achievement of Government’s priorities. accruing to community stakeholders and potential
measures to mitigate these impacts. Further guidance on
Unlike the financial and economic assessments that focus
preparing Impact Matrices can be found in Queensland
principally on the final overall net impact, a key theme of
Treasury’s Public Benefit Test Guidelines.
the public interest assessment is to consider the
“distributional’ consequences of moving from the current
state to alternative states.
Agencies should also make reference to the Social
Analysis sections of the Queensland Treasury Project
Evaluation Guidelines (March 1997) and the draft
Queensland Treasury Business Case Guidelines, which
provides additional guidance on social outcomes.
“IMPACT MATRIX” – EXAMPLE
Stakeholder Type of Impact Timing Traditional Delivery PPP Delivery
Community Improved facility for Following Perceived safety of Contractual safety of
delivery of service. completion of delivery. delivery.
Increased likelihood of
commissioning on time.
of maintenance and
standards will be met.
Line Agency Budget Impact due Dependent on Ability to apply Ability to link ongoing
to construction and delivery method. capital surplus to service delivery
maintenance of initial construction including maintenance,
facility. cost. May have upgrades etc to
difficulty in funding specified recurrent
maintenance, refit funding.
and upgrade during
Core Service Improved ability to Upon Service standards Ability to ensure service
Provider deliver core service commissioning of may deteriorate delivery standards are
through improved facility. through inability to maintained at specified
facility. fund required levels during whole of
Designated process to
add additional service
through life cycle.
requirements over time
through process agreed
in initial contract.
Private Sector Ability to undertake Dependent on Potential for Ability to form long term
Partners work on behalf of Project Delivery involvement in partnership.
Government. Option. design and
3.2.9 COMPLETION OF ENVIRONMENTAL, CULTURAL Employment security and preservation of employment
HERITAGE, NATIVE TITLE AND OTHER SPECIALIST conditions and entitlements are of paramount importance
STUDIES to workers. Accordingly, when developing specific Project
Delivery Options, employee concerns need to be
Environmental, planning, Cultural Heritage, Native Title considered and appropriately addressed.
and other specialist issues require consideration and
analysis during the development of Project Delivery The focus of the employee, employment and skills
Options. Where unresolved or not addressed, these issues development assessment is as follows:
may impact the viability of those Project Delivery Options • Employee stakeholder consultation: It is
being considered. A number of specialist studies will be recommended that the Government Project Team open
used to inform the Reference Project, PPP Project, PSC and lines of communication with employees, employee
Partnership Model. groups and unions early in the project timetable in
Undertaking these studies (or elements thereof) may also order to promote an understanding of the project and
be a viable risk management strategy. Understanding risk to avoid negative sentiment due to lack of information
better through the study may provide a better and potential mis-truths. Dialogue in these contexts
understanding of the risk and the management options should be open and consultative, with the aim of
available. ensuring effective change management mechanisms
can be developed and implemented during project
These studies could be made available to Bidders during development;
the Binding Bid Stage (Stage 5). However, a careful
analysis of the risks and benefits of making these studies • Employment and Training Impact Statement: The
available to bidders needs to be undertaken prior to a Government Project Team is required to instigate an
decision being made. If a decision is made to release the Employment and Training Impact Statement. Agencies
studies, care must be taken to ensure that warranties should make reference to the Department of
appropriate to the studies are provided with them. Employment and Training’s Employment and Skills
However, if Government provides warranty as to the Development Impact Statement, which provides
reliability of material, it may increase its own exposure to guidelines and a template for the preparation of such
risk. an impact statement.
Some specialist studies may be lengthy in nature, and as In accordance with the guidelines, an Employment
such, may not be completed prior to finalisation of and Training Impact Statement is intended to assess
Business Case Development. Provided the issues which the likely impact of the project on employment and
will impact upon the viability and timing of a project can skills development, (be it positive or negative) and to
be appropriately included in the business case, these identify where employment and skills development
studies need not necessarily be completed until the opportunities are being generated.
beginning of the Binding Bid Stage. The studies should be 3.2.11 DEVELOPMENT OF THE PUBLIC SECTOR
completed in sufficient time to allow the Bidders (if COMPARATOR (PSC)
appropriate) to access the information and include
appropriate responses in their Binding Bid. The development of the PSC is a specialist skill and is
therefore likely to be undertaken by the Financial Adviser.
Given that these issues may have a significant impact on
The PSC is a hypothetical model that estimates the risk-
the viability and timing of a project, careful and particular
adjusted, whole of life cost to Government of delivering
consideration of each is important. While most issues
the Reference Project via a traditional delivery method.
were likely highlighted in the Preliminary Assessment, all
will need further consideration and, potentially, a greater The PSC represents the true financial cost (net of any
level of analysis during Business Case Development. revenues) to Government of meeting the Output
Specifications under a public procurement delivery
3.2.10 COMPLETION OF EMPLOYEE, EMPLOYMENT
method. As such, the PSC:
AND SKILLS DEVELOPMENT ASSESSMENT
• includes a full, whole of life, risk adjusted estimate of
Employees, whether existing or future, are key project cost;
stakeholders in most projects, and their issues and
concerns are very important in project development. In • is a key management tool during the procurement
many cases, existing employees will have direct input into process, as it focuses attention on the Output
the project, through the development of the Output Specification, risk allocation and development of a
Specification. comprehensive estimate for the Project;
• provides a means of demonstrating likely value for
• provides a consistent benchmark and bid evaluation • assumptions used in the derivation of the discount
tool; and rate;
• encourages the Private Sector to put forward its most • details of foreign exchange assumptions;
• insurance assumptions;
The key attributes of the PSC are:
• estimation of the replacement cost capital items and
• the model is developed in Net Present Value (NPV) when they occur over the project term;
terms. The NPV is based on the ‘time value of money’
• to detail and separate out the costs relating to
concept and takes into account the effects of the
revenues to Government; and
timing of different cash flows over the project life by
calculating the total, net amount of all cash flows in • to ensure that the costs provided correlate with the
equivalent values; scope of the Reference Project, and that any changes
to the Reference Project are reflected in amended cost
• the NPV analysis is conducted using nominal cash
flows discounted at a nominal discount rate. The
discount rates used must be developed in GST
consultation with Queensland Treasury and the IPT; GST is paid on most services at a rate of 10%. Agencies
• it is costed over the life of the Project; and are entitled to a GST refund from the Australian Tax Office
(“ATO”) for any GST paid. The ATO advise that they aim to
• it takes account of the risks identified in the refund GST within 14 days of the lodgement of the
forecasted cash flows. Business Activity Statement. As such, the cost of the
The PSC is comprised of two elements: timing lag between the remittance of GST and the ATO
refund of GST is not considered material, and therefore,
(i) Raw PSC (base costing); and the PSC is usually calculated net of GST.
(ii) Risk adjustments (Transferable and Retained risks). However, the GST has a minor working capital cost
22.214.171.124 RAW PSC resulting from the timing lag between the payment and
collection of GST. For budgeting purposes, the GST
The raw cost estimates for the PSC are based on the
position of the Agency should be checked, as it may be
Reference Project and are generally derived by the
different to that described above.
technical advisors in consultation with the Agency. To
build up the raw costs for the PSC, the Terms of Reference The treatment of GST for the PSC and the Partnership
for this work by the technical advisors include, inter alia: Model should be the same for consistency and
• to estimate each cost in accordance with the scope of
the Project, detailing assumptions used for each cost 126.96.36.199 RISK ADJUSTMENTS
category and the breakdown of the costs in each cost Risk and uncertainty are inherent in all projects, no matter
category; the size.
• to provide the cost estimates as at an agreed date; For Project Management, the most serious consequences
• to provide details on inflation/indexation of costs for of risk can be broadly characterised as:
each cost category over the project term. For example, • failure to keep within the cost estimate;
labour rates/wages usually rise faster than CPI, and
construction materials may also inflate at different • failure to meet the completion date; and
rates. Guidance should also be sought directly from • failure to achieve the required quality and operational
Queensland Treasury and IPT for inflation assumptions requirements.
relating to long-term projects;
Risk is all too often ignored or dealt with in an arbitrary
• to reflect the true financial cost of the project to way, by, for example, simply adding 10% “contingency”
Government rather than the cost to the Agency (this onto the estimated cost of a project. This contingency is
may be different, for instance, when a GOC is the almost certain to be inadequate and will result in cost
traditional delivery mechanism)1 overruns and delay. It is therefore essential that risk is
• estimation of the timing of construction costs over the identified and valued, where possible, in order to gain a
construction period; full appreciation of the likely cost to Government of
pursuing the project.
• to detail the assumptions regarding the payment
terms of the contractor, i.e., are there any holding The identification and costing of risks is particularly
costs included in the raw estimates; important, as risk allocation and its financial
consequences will play a key role in assessing value for
1 It is important to note that Binding Bids must include all revenues to money and contract negotiation.
Government that may be imparted by the project including payroll tax,
stamp duty, land tax, etc. These will be adjusted as part of the value for
In practice, it is likely that some combination of the The PPP delivery mechanism may be preferred over the
individual risks identified (whether quantified or not) will alternative PSC delivery, as it offers Government a
be encountered. It is therefore important to make some reduction in its overall exposure to risk volatility.
assessment of the implications of the combined impact of
It is important to recognise that probabilities and
the identified risks. It must also be recognised that not all
uncertainties in cost prediction vary from stage to stage
identified risks will be quantifiable. It is therefore
and therefore so do the measures of likely cost outcome
important that these risks are also captured in the
and volatility. The quantifications of risk at the
analysis (not only for Business Case Development, but
identification and appraisal stages of a project should be
also during Bid Evaluation).
detailed enough to give a reasonable upper limit for the
The analysis of the combined range of identified and project. Then, as risks and uncertainties are removed or
quantified risks provides a greater understanding of the reduced, the risks should reduce.
risk spectrum or “volatility” that is inherent in the project.
Figure 6 illustrates the effect of risks on cost predications
Volatility can be considered in terms of a probability (or
at different stages during the project. This so-called
confidence) limit that is usually expressed as the “P90” –
‘torpedo’ diagram illustrates how the development of the
the range of outcomes bounded by the fifth and ninety-
Reference Project generally results in a better
fifth percentile probability outcomes (refer to Appendix C
understanding of the risks associated with the project and
for further details).
a corresponding reduction in the spread of potential
Figure 5 illustrates the inherent volatility of the costs of a outcomes. The step down between the PSC and the PPP
traditional approach, compared with that of a PPP option. Contract represents the expected value for money
In this case, where Government retains more risk under outcome, albeit with some uncertainty associated with the
traditional procurement than under PPP, the potential retained risks. Final out turn cost will not be known until
range of cost outcomes for the PSC is wider than that for the end of the contract, but should lie within the range
the PPP. estimated at contract award.
The analysis of risk both in terms of expected cost (single
figure estimation) and volatility is very powerful, as it
provides a full understanding of the inherent uncertainty
in the project.
Likelihood of PPP
Figure 5 – Risk Volatility Comparison
Torpedo Diagram of Risk Analysis and Management
Feasibility study PSC Bid Project cost
B B ABC
A C A C A C
Preliminary PSC PPP Contract
Assessment Contract Management
Figure 6 – Total Diagram of Risk Analysis and Management
188.8.131.52 REALITY CHECK OF THE RISK ADJUSTED PSC
The type of reality check or review conducted depends
largely on the complexity of the project. The extent of the
review process can range from a comprehensive audit of
the calculations in the model to independent advice on
the Raw Cost Estimates. As it is usual for the scope of the
project to change during the development of the PSC, the
reality check is important in ensuring that the estimated
costs are consistent with the scope. As stated earlier,
continual checking of the Reference Project and
communication between the Government Project Team,
technical advisors and financial advisors regarding
changes to the scope of project services will help to
ensure that the assumptions underlying the PSC are
A review of risk adjustments could be performed by
comparing the percentage likelihood of the risk occurring,
and the associated cost impact to empirical evidence from
FREQUENTLY ASKED QUESTIONS
Q1. WHAT RELEVANCE DOES THE PSC HAVE ON OUR BUDGET?
A. The PSC promotes full cost pricing at an early stage in the project cycle. The PSC is commenced during the
development of the Business Case and therefore sets the budget funding limit for funding approval that may be
sought from CBRC/Cabinet.
Q2. IS IT ALWAYS NECESSARY TO CONSTRUCT A PSC?
A. Yes. Not only is the PSC an integral component of Queensland’s PPP Policy, it also represents best practice
benchmarking for all Government capital investment projects irrespective of the ultimate means of procurement.
The PSC is a key management tool during the procurement process and focuses attention on outputs, risk and
costing at a very early stage in the project. The PSC is also a reliable means of demonstrating value for money and
provides a consistent benchmarking and bid evaluation tool.
Q3. BY WHAT STAGE DOES THE PSC NEED TO BE COMPLETED?
The PSC is developed and refined during Business Case Development (Stage 3). It needs to be developed to an extent
that it can be presented to Cabinet/CBRC at the end of the Business Case Development Stage in order to assist
Cabinet/CBRC to make a decision as to whether the project should proceed to Expressions of Interest (Stage 4).
Q4. CAN THE PSC BE CHANGED?
A. Yes. The PSC can be changed during the procurement, subject to certain constraints. The PSC should be
regularly discussed throughout the feasibility process and, where necessary, amended as a result of changes in
scope, or if it becomes apparent that a significant component has been mis-priced or omitted. However, where
there is an impact on the potential funding requirement, it will be necessary to consult with IPT and Queensland
Treasury in order to determine whether it may be necessary to resubmit the Business Case to CBRC and Cabinet
Q5. HOW ACCURATE DOES THE PSC NEED TO BE?
A. The sole convincing argument for a PPP delivery is that it offers the potential for Government to secure better
value for money and greater innovation in the delivery of services. To determine whether the PPP Project Delivery
Option is likely to deliver a value for money outcome, the PSC must be a robust and defensible estimate of the
cost to Government of providing the services through a traditional means of procurement. Having said this, it
should be kept in mind that risk quantification is a subjective element of the PSC.
Q6. WHAT SHOULD BE ASSUMED ABOUT FUTURE INFLATION?
A. Guidance should be sought directly from Queensland Treasury and IPT for inflation assumptions relating to
Q7. SHOULD THE PSC BE BASED ON COST FIGURES FROM PREVIOUS PROJECTS, EVEN THOUGH THINGS CAN BE DONE
A. If a Government Agency believes that things can be done better under conventional Public Sector procurement
than in the past, and there is significant credible and verifiable evidence to support this belief, then the PSC
should reflect these efficiencies. Evidence of potential for future cost savings might be provided by a declining
trend over a significant period. Equally, if costs have been increasing, this trend should be projected into the
future. If cost savings are possible, but there is no supporting evidence for their realisation, then they should not
be incorporated into the PSC. However, sensitivity analysis should be undertaken to understand the effects of
such possible cost improvements on the PSC.
Q8. SHOULD THE PSC INCLUDE THE VALUE OF THE PRE-EXISTING ASSETS REQUIRED TO PROVIDE THE SERVICE? HOW
SHOULD THESE ASSETS BE VALUED?
A. The value of all pre-existing assets should be included in the PSC. Virtually all pre-existing assets will have an
alternative use to Government and/or a market value that is the basis for estimating the opportunity cost. Very
occasionally, there is no alternative use for a pre-existing asset so that the opportunity cost is zero and the asset
represent sunk costs.
Q9. SHOULD THE PSC BE ADJUSTED TO REFLECT THE FACT THAT PPP PROJECTS RESULT IN TAX REVENUES TO THE
A. Yes, the values of revenues flowing to the State under PPP procurement are to be accounted for in both the
Partnership Model and PSC model. Examples of the types of costs that may have an effect on revenues to
Government include land tax, stamp duty and payroll tax.
Q10. SHOULD THE PSC BE ADJUSTED TO REFLECT THE FACT THAT PPP PROJECTS RESULT IN A TAX PAYMENT TO THE
A. No, unless the tax receipts associated with the project are directly channeled back to the State. The
Commonwealth tax issues associated with a PPP project should be explored and documented as part of the
development of a robust Business Case.
Q11. SHOULD WE INCLUDE A COST FOR INSURANCE IN THE PSC?
A. Yes, if there are insurable risks involved in a project procured under conventional means. Even if insurance is
not taken out, the commercial premium is a good proxy for the value of that risk. Be careful to avoid double
counting (i.e., by including the cost of the risk and the insurance premium).
COMMON PROBLEMS IN CONSTRUCTING AND USING THE PUBLIC SECTOR COMPARATOR (PSC)
Some problems commonly experienced in the construction and use of PSCs are as follows:
• introducing inappropriate and spurious detail in risk analysis. It is important to focus on the important risks –
follow the Pareto Principle of placing emphasis on, and allocate resources to, the significant few, rather than
the insignificant many. For value for money comparison, it is the risk that is transferred that is the significant
factor to be quantified;
• failure to properly and systematically record the construction of the PSC, including failure to record
assumptions, including reality checks and validations, and failure to record sources of information. (This
should not be an expensive process, and should not require additional resources – it simply requires
discipline in recording material as one goes. There are clear and important benefits from a methodical and
rational PSC construction process);
• errors and confusion from poor financial models. It is worth investing in spreadsheet and financial modelling
skills, specifying good style so that coherent and clear spreadsheets are routinely developed, and by
documenting the spreadsheet properly;
• changes of personnel in the Government Project Team constructing the PSC can make for difficulties, but are
sometimes unavoidable. Such problems can be minimised by being meticulous in maintaining appropriate
• invalid bases for estimating economic costs of occupying property, e.g., utility costs, etc;
• ignoring real price movements. No one can accurately forecast real price changes for the long time periods
involved in a PPP procurement project. However, some facts, information and advice may be readily available
for real price movements of component costs of the PSC, e.g., for building material over the immediate
• underestimation of the impact of foreign exchange movements, where a project requires the importation of
• underestimation of costs, especially third party fees and performance monitoring costs to Government;
• underestimation of maintenance costs due to the omission of lifecycle costs required to maintain the asset in
the required condition to supply the specified service;
• inclusion of contingency items in the Raw PSC. Contingency items should be excluded from the raw PSC costs
and included as part of the project risks;
• inconsistent output specifications between the Reference Project / PSC and the Private Sector bids. Make sure
that the Private Sector bids are not requested in terms of a different quality of service than what is in the
Reference Project and PSC;
• failure to guide the Private Sector bidders in terms of format and content of bids. This can make risk allocation
unnecessarily difficult, if not impossible in practice. Broad guidance on style and content should be provided
in the Project Brief; and
• making unverifiable assumptions about the timing of availability of public funds e.g. phasing capital
investment over 15 years on the basis that public capital would be available in that timescale. The PSC
assumes availability of upfront funding.
3.2.12 DEVELOPMENT OF THE PARTNERSHIP MODEL ‘riskiness’ of the loan. Debt ratios need to be
considered during the development of the Partnership
The Partnership Model is a hypothetical model that Model to assist in understanding the acceptability of
estimates the true financial cost to Government to procure the project to financiers. Further advice on the use of
the required service under the PPP Project Delivery these ratios should be sought from the Financial
Option. The development of the Partnership Model Adviser.
requires specialist skill and is therefore likely to be
undertaken by the Financial Adviser to Government. Items • Tax. Any structure devised for the delivery of a project
to be considered in the development of the Partnership must consider the taxation issues. As with all tax
Model include: matters, the taxation consequences will depend on
the precise and full facts of the structure proposed.
• Service Payments. The Partnership Model represents Expert tax advice should be sought for the tax
an estimate of the Project Delivery Option that the treatment of specific projects and the optimal way of
Private Sector would likely adopt to structure the structuring a project.
project. The aim of this exercise is to estimate the
Service Payments that the Government would pay over • Third Party Revenue. Third party revenue usually
the Operating Period of the Project. Ultimately, the arises from commercial development that occurs
Partnership Model allows Government to determine outside of the normal course of business for the
the likelihood of gaining value for money under a PPP Agency, but is allowed under a PPP arrangement.
Delivery Option. Additional discussion of Service Assumptions regarding future demand and revenue
Payments is in Section 184.108.40.206 below. should be carefully estimated and external advisers
may be required in order to help estimate the revenue
• Financing. Where private financing is a feature of the streams and the risks associated with them.
PPP Project Delivery Option, the Partnership Model must
incorporate the likely financial structure that the Private The attraction for Government of third party revenue in
Sector would use to finance the project. In general, the the project is the potential decrease of the project cost
loan facility amounts are based on the construction cost to Government. There are various ways in which
for the project with a working capital allowance. Government can structure the project that will impact
on how the Service Payment is calculated. If all the
• Debt. Consideration should be given to the drawdown commercial revenue is to go to the Private Sector, then
and repayment profile of debt. Usually the drawdown the Service Payment could be calculated net of the
of funds will be matched to the construction period commercial revenue. If, for example, Government
funding requirement and debt will terminate a few wishes to profit share in the commercial development,
years prior to the end of the Operating Period. The then the Service Payments could be calculated before
timing of interest/principal repayment profile can be any commercial revenue, and the profit share element
annual, semi annual, or quarterly. Upfront, separated out and paid to Government in a separate
commitment, Agency and underwriting fees, as well as payment. The calculation of the Service Payment with
interest rates need to be considered. regard to commercial revenue will differ from project
• Equity. Equity can be paid into the project in any to project depending on how the project is to be
number and combination of ways. The specific structured. Once again, Market Sounding may aid in
structure will depend on many factors, including the assessing the commercial potential of the project with
sources of equity providers and their appetite for risk. and without specific commercial development.
• Debt Ratios. These ratios are a measure of the extent to • Revenues to Government. Most privately funded
which available cash flow from the project covers loan projects will involve the Private Sector making
repayments, and are used by financiers to assess the payments to Government in the form of land tax,
stamp duty, payroll tax or other charges. These should • Performance relates to the operation of the facility to
be included in the Partnership Model. agreed operational standards. These standards are
expressed in terms of measurable Key Performance
• Cost of Retained Risks. Retained risks that were
Indicators. In the event of poor performance that does
identified and quantified in the PSC are to be added
not meet the performance standards, deductions may
back to the Partnership Model such that a like-with-
like comparison can be made.
• Volume/Usage is typically incorporated in the
• Residual Value of the Asset. If the project is structured
Payment Mechanism where demand risk is shared
so that Government pays a residual value to the
between the Government and the Private Sector party.
Private Sector at the end of the Operating Period, then
This is often the case where the payment structure is
this cash flow should be included in the Partnership
wholly or partly demand or market driven. For
Model. Expert advice should be sought in order to
example, toll road revenues are a function of usage
obtain an estimate of the value of the asset. Note that
and user charges; payments for water treatment
there will be tax and accounting implications resulting
plants are determined by the plant throughput; and
from the way this is structured, which may affect both
the Government and Private Sector approaches to the • Indexation linking the service payment to inflation.
Each aspect of the payment mechanism is linked to Risk
• Discount Rate. The discount rate used to determine Allocation. The payment mechanism should include
the NPV of the Project must be developed in performance-based incentives as well as payment
consultation with Queensland Treasury and IPT. abatements (penalties), liquidated damages and
220.127.116.11 PAYMENT MECHANISMS
The payment mechanism may encompass payments from The payments are linked to the services provided by the
third parties and/or Service Payments from Government. Private Sector and the risks borne by both the Private
The key aspects of the payment mechanism are: Sector and Government.
• Availability of the service for which an availability fee 18.104.22.168 VALUE FOR MONEY ASSUMPTIONS
is paid regardless of usage (e.g., heat provided, light, The Partnership Model is set up to test value for money by
equipment standards); running a series of sensitivity and scenario analyses on
key assumptions. The Partnership Model must therefore
be capable of running sensitivities and scenarios around
the following value drivers:
Value Driver Suggested Partnership Model Variable
Risk allocation • All cost assumptions
• Return on equity (if applicable)
• Discount rates
Whole of life costing • Capital cost
• Operating and Maintenance costs
• Major refurbishment costs
Innovation • Capital cost
• Operating and Maintenance costs
• Major refurbishment costs
Asset exploitation • All costs to reflect additional services required to
generate third party income
• Third party income
Economies of scale • Capital cost
• Operating and Maintenance costs
3.2.13 VALUE FOR MONEY ASSESSMENT OF PROJECT As a guide, qualitative assessment should address the
DELIVERY OPTIONS following issues:
One of the key objectives of the PPP Policy is to ensure • Risk Allocation:
that the Government obtains a value for money outcome. – Have risks been allocated to the party best able to
The assessment of value for money may be considered to manage the risks?
be three-dimensional: – Is there a genuine transfer of risk to the Private
• The economic assessment is concerned with the worth Sector?
of the project to the Government, the community and – Does the market have sufficient management
the user of the services. This assessment is based on quality to control the transferred risks?
cost benefit analysis techniques that focus on the
broader economic, social and environmental impacts – Does the market have the appetite to take the
of the project (triple bottom line). An economic risks being transferred?
assessment should include the cost and benefit – Is there sufficient credit quality in the market?
differentials arising from different Project Delivery
– Can the contract be developed to enforce the risk
Options yielding different timing outcomes;
• The financial assessment is primarily concerned with
– Can the risk allocation be relied upon even under
the likely cost of the project to the Government (or end
extreme circumstances, such as Private Sector
user). The assessment is based on a discounted cash
flow analysis that incorporates risk valuation. The
basis of the financial assessment is a whole of life – Have design, planning, completion and
comparison of the various Project Delivery Options for operational risks been allocated to the Private
the project. Using discounted cash flow techniques, Sector?
the various Project Delivery Options can be compared
– To what extent is residual value risk transferred to
by measuring the Net Present Value (NPV) of each
the Private Sector?
option. Typically, the NPV will be expressed as a range
of likely costs as a reflection of the inherent – Is payment at risk to service performance?
uncertainty of risk;
• Whole of life Costing:
• The quality assessment is based on defining the
– Is the Private Sector free to determine the
service requirements in terms of the outputs sought
operating and maintenance requirements to meet
by Government. As part of Business Case
the Output Specification?
Development (Stage 3), the Output Specification must
be developed to sufficient detail for incorporation into – Is the Private Sector responsible for all
the documentation for the Binding Bid Stage (Stage refurbishment requirements?
5). The Reference Project and associated PSC also
– Is the Private Sector responsible for performance
developed for the Business Case must be based on
of the asset throughout the contract period?
the Output Specification, and therefore must be
capable of delivering the services at the requisite level • Innovation:
of quality. Ultimately, the final quality assessment is
– Is the Private Sector free to determine how to
undertaken as part of the evaluation process during
deliver the services?
the Binding Bid Stage, when the bids received are
assessed for quality against each other and the PSC. – Is the manner of the design and construction of
the asset a decision under the control of the
The economic assessment forms part of the Preliminary
Assessment. The financial assessment forms the core part
of the analysis undertaken for Business Case – Is there scope for innovation either in asset design
Development. The quality assessment is an ongoing or service delivery?
requirement of all viable Project Delivery Options. – Is the scope of service delivery sufficient to
22.214.171.124 VALUE FOR MONEY – QUALITATIVE ASSESSMENT provide incentive for innovative design solutions?
The purpose of the qualitative assessment is to – Is the Private Sector responsible for all or only part
subjectively test whether the objectives, service of the services required to be delivered from the
requirement and proposed structure of the project are asset?
likely to provide the Private Sector with sufficient scope to
– To what extent is the Public Sector responsible for
access the value drivers.
service delivery utilising the asset?
• Improved Asset Utilisation:
– Is the Private Sector service provider able to
generate additional third party income from the
– Can the Private Sector provide additional services
to third parties?
– Is third party revenue generation likely to reduce
the overall cost of the service to Government?
• Economies of Scale:
– Is the market for the service large enough to
access significant economies of scale, either in
construction or operations?
The Business Case (Stage 3) should incorporate a broad
discussion of the qualitative assessment of the project’s
value for money, with reference to each of the value
drivers. As a minimum, all of the issues identified above
should be addressed as part of this assessment.
A useful tool for summarising the qualitative assessment
is to adopt a scoring mechanism against each of the value
drivers. For example:
• x represents no scope for value
• represents some scope for value
• represents reasonable scope for
• represents excellent scope for value
To illustrate how this scoring mechanism, or one similar,
can assist with the qualitative assessment of value for
money, consider the following hypothetical examples.
Note that, in practice, there would of course be much
more information available for analysis during the
qualitative assessment of such projects.
FIBRE OPTIC COMMUNICATION PROJECT – EXAMPLE 1
To support the communication and signalling requirements of a rail corridor, Government is seeking Private Sector
participation in the provision of fibre optic cable infrastructure. The infrastructure is to be installed via a ‘design,
construct, own and maintain’ Project Delivery Option, with the following key features:
Objective • To provide rail signalling services on a defined rail corridor
Service Requirement • To provide current and future rail communication needs along a
defined rail corridor
Scope for Private Sector involvement • Provision, operation and maintenance of the fibre optic cable, i.e.,
Public Sector involvement • Transmission, i.e., lit fibre
Transferred Risk • Design, Installation, Operation and Maintenance Costs, Third Party
Retained Risk • Transmission of signalling service
The following table summarises the qualitative assessment of value for money for this project:
Value Driver Value Score Rational
Risk allocation X The proposed risk allocation is very similar to that
under the traditional Project Delivery Option
Whole of life costing X Operation and maintenance costs of dark fibre optic
cable is relatively small in comparison to installation
Innovation X Little scope to innovate in what is essentially the
design and roll out of fibre optic cable
Asset Utilisation Scope to exploit additional fibre optic capacity for
third party revenue generation
However, given the current market saturation in fibre
optic capacity, the scope for generating additional
revenue to deliver value back to the Government
Economies of Scale Some scope to incorporate the rail corridor into a
much bigger fibre optic network
This qualitative assessment indicates that there is little value for money opportunity in the PPP Project Delivery
Option for provision of the dark fibre services to Government (i.e., within risk allocation, whole of life costing and
innovation). In this example it may be possible to improve on this value by widening the service provision to include
transmission services. The only realistic source of value in the current project structure lies in the generation of third
party revenue from spare communications capacity, and in the potential to incorporate the rail corridor into a bigger
fibre optic network. However, given the current oversupply in the telecommunications market and the significant
markdown of the industry worldwide, it is unlikely that these value drivers alone will provide sufficient scope to
generate value for money for Government. Overall, the qualitative assessment indicates that there is little to no
scope for generating value for money from the project, (as currently structured) and as such, a quantitative
assessment would not be required.
LOCAL LEISURE CENTRE – EXAMPLE 2
To support its health and fitness policy Government is seeking Private Sector participation in the provision of a
leisure centre facility. The facility will incorporate international playing services for a number of defined sports. The
project will possess the following key features:
Objective • To increase the community participation in health and fitness
and to encourage involvement in certain international sports
Service Requirement • To provide leisure facilities to a defined standard
Scope for Private Sector involvement • Design, construction, maintain, operate and finance the leisure
facility that is to be funded by a combination of user charges
and Government subsidy
Public Sector involvement • Definition of output requirements, monitoring of service delivery
and payment of fixed subsidy (tendered)
Transferred Risk • Design, planning, construction, operation and maintenance
costs, residual value, volume of usage
Retained Risk • None, other than meeting the subsidy payments as bid and
The following table summarises the qualitative assessment of value for money for this project:
Value Driver Value Score Rational
Risk allocation The proposed risk allocation appears optimal and
transfers significant volume/ usage risk to the Private
Whole of life costing Operation and maintenance costs of the leisure centre
are significant when compared to the design and
Innovation There is reasonable scope to be innovative in service
delivery, for example incorporating flexible playing
services capable of supporting different sports
Asset Utilisation Significant scope to exploit the leisure and sports
market and even to expand into related services such
as catering and sports injuries
Economies of Scale Some scope to incorporate the development into an
existing network of sports services
This qualitative assessment indicates that there seems to be significant scope for the Private Sector to access and
exploit the value drivers. Whilst Government has recognised that a subsidy may be required to maintain the sports
facilities to international standards, there is significant transfer of volume or usage risk to the Private Sector.
There also appears to be significant scope for innovation in service delivery and increased asset utilisation by
incorporating complementary services. Overall, the qualitative assessment indicates that there is significant scope
for generating a value for money outcome from the project as structured. Therefore, a quantitative assessment of
the project would be required.
Though these examples are necessarily simplistic, they do The quantitative assessment is based on discounted cash
illustrate the type of analysis required for the qualitative flow analysis carried out on the Partnership Model and in
assessment. The fibre optic example also demonstrates comparison with the PSC. The quantitative assessment
how the qualitative assessment can be sufficient to should be built up using the following techniques:
demonstrate that the project is unlikely to represent a
• Sensitivity analysis; and
value for money option for Government. In this example,
the next step would be to explore the options for • Scenario analysis.
restructuring the project and/or expanding the services
provided by the Private Sector to see if such actions
improve the qualitative assessment. If, after carrying out Sensitivity analysis is a technique used to consider the
this exercise, the qualitative assessment demonstrates effect on the whole project of changes in the value of each
that there is still little scope for generating value for of the value for money drivers. The analyses involve
money via a PPP Project Delivery Option, then the repetitive calculation of the effects on the project outcome
Business Case (Stage 3) recommendation would be to of a range of values of the variables that generate value
pursue the traditional delivery option. This example for money. Project outcome is usually considered in terms
further illustrates that by carrying out a robust and of overall value for money, expressed as the difference in
defensible qualitative assessment, the additional costs NPV between the PSC and the Partnership Model.
and time required to develop a quantitative assessment The results of sensitivity analyses can most usefully be
can be avoided. shown graphically on a spider diagram. Figure 7 shows
126.96.36.199 VALUE FOR MONEY – QUANTITATIVE ASSESSMENT
how changes in the above-mentioned key variables for the
model impact on the total NPV. Steeper gradients indicate
The purpose of the quantitative assessment is to
that the NPV is more sensitive to changes in this variable
objectively test whether the objectives, service
relative to the other variables tested.
requirement and proposed structure of the project are
likely to provide the Private Sector with sufficient scope to
access and exploit the value drivers. Quantitative
assessment will determine which Project Delivery Option
is most likely to deliver optimal value for money. It will
also provide the benchmark against which Bids will be
evaluated in the Binding Bid Stage (Stage 5).
Sensitivity Analysis – VFM
-15% -10% -5% 0% 5% 10% 15%
% change in Base Case
Asset Utilisation ($m)
Risk Allocation ($m)
Economies of scale ($m)
Whole of life costing ($m)
Figure 7 – Sensitivity Analysis
This example is based on an analysis of the possible Delivery Option to represent a value for money outcome. It
overall value for money, which itself is based on the most also provides a focus on the areas that critically impact on
likely cost outcome for the leisure centre example. The value for money, as shown in the example above, where
spider diagram represents the sensitivity of the overall sensitivity analysis highlighted the importance of asset
outcome, and changes in the variables identified in the utilisation for the project in question.
Partnership Model. For instance, it indicates that, for this
A limitation of sensitivity analysis is that each variable is
project, the overall value for money is particularly
considered independently, with no attempt made to
sensitive to asset utilisation (as indicated by the
quantify their combined impact or the extent to which
steepness of the gradient of the asset utilisation graph
ranges are achievable.
compared to the other drivers). In comparison this project
is relatively insensitive to whole of life costing. SCENARIO ANALYSIS
The technique is very useful as the effect of a small Scenario analysis is a technique used to consider the
change in one variable (in this case, asset utilisation) effect on the whole project of changes in a combination of
often produces a marked difference in the value for money value for money drivers. Scenario analysis overcomes
outcome. Sensitivity analysis can also be extended to some of the limitations of sensitivity analysis by
look at the individual variables that comprise the project, specifying ranges of outcomes for each variable and
for example: looking at likely combinations. The result of scenario
analysis is a range of values in which the final outcome
• capital costs; may lie. The results of scenario analysis can be usefully
• operating and maintenance costs; represented in the form of a bar chart comparison. Figure
8 demonstrates how a PPP Project Delivery Option is likely
• refurbishment costs; to deliver value for money when compared with the range
• discount rate; of possible outcomes from the traditional option (i.e., the
• inflation rate; and
• equity rate of return.
Sensitivity analysis is particularly useful in determining
the variables that have a significant impact on the value
for money outcome. Sensitivity analysis can therefore
provide support for the qualitative assessment and
indicate whether there is potential for a PPP Project
Scenario Analysis – VFM
378 401 438
381 406 449
350 375 400 425 450 475
Best case/Expected Case/Worst Case
Figure 8 – Scenario Analysis: VFM
3.2.14 COMPILATION OF THE PPP BUSINESS CASE 13. Project Delivery
This section provides the Government Project Team and • Project Management requirements
sponsoring Agency with guidance on the deliverables to • Resources and organisation for the Binding Bid
be included as part of the submission to CBRC and process
Cabinet. It should be noted that the guidance provided in
this section is indicative only and the final format for • Timetable
submission should be considered on a project-by-project • Post-Contract award management
14. Conclusion & Recommendation
A suggested contents for a PPP Business Case is as
Detailed Output Specifications
1. Executive Summary
Detailed Risk Matrix
2. Business Profile PSC Model & Assumptions
3. Output Specifications Partnership Model & Assumptions
3.2.15 CONSIDERATION BY CABINET
At the end of the PPP Business Case Development Stage,
a submission will be presented to CBRC and Cabinet
4. Reference Project Development seeking:
5. PPP Options Development • confirmation of project priority and affordability;
• Services • approval to proceed with the recommended Project
• Infrastructure Assets
• in the context of Government’s normal budget process
• Related Non-Core Services
– funding approval for the recommended Project
• PPP Models
Delivery Option; and
• Risk Allocation
• where a PPP Project Delivery Option is approved,
• Qualitative Comparative Analysis approval to proceed to Expression of Interest (Stage 4)
• Commercial Structure The key deliverables to CBRC and Cabinet are as follows:
Payment mechanism (i) CBRC and Cabinet Submission
Revenue composition This should be a document prepared by the
Government Project Team that acts effectively as an
• Legislative / regulatory considerations
executive summary of the Business Case (Stage 3). It
For project delivery should provide an overview of the Business Case, and
should summarise and highlight the specific issues
Overall Government context
for consideration at the CBRC and Cabinet levels.
6. Market Sounding
Specific guidance should be sought from IPT,
7. Public Interest Assessment Queensland Treasury and the Queensland Government
8. Environmental, Cultural Heritage, Native Title and Cabinet Handbook as to the specific requirements of
other specialist studies the final Cabinet Submission.
9. Employee, Employment and Skills Development (ii) PPP Business Case report
Assessment In preparing the Business Case, the Government
10. The Public Sector Comparator Project Team should refer to the suggested Table of
Contents outlined in Section 3.2.14. This report will be
• Raw PSC based on provision of the following outputs to CBRC
• Risk Analysis and Cabinet:
11. The Partnership Model • Project Plan;
12. Value for Money Assessment • Output Specification;
• Qualitative Assessment • Documented Reference Project;
• Quantitative Assessment • Documented Project Delivery Options;
• Summary Risk Assessment and Risk Allocation
• the PSC;
• the Partnership Model;
• Value for Money Assessment for Project Delivery
• Specialist studies/assessments.
(iii) Other supporting documentation
As part of any submission, the Government Project
Team should consider including additional
documentation that could assist CBRC and Cabinet in
reaching an informed decision.
Documentation should include (where applicable) the
• Public Interest Assessment;
• Environmental Impact Assessment;
• Planning Assessment;
• Cultural Heritage;
• Native Title;
• Employment and Training Impact Statement; and
• Other Specialist Studies.
Risk assessment incorporates:
APPENDIX 1 – QUANTIFYING RISK
• estimation of the likelihood of the occurrence of each
The Risk Management Supporting Document sets out the risk;
Risk Management cycle. This cycle is:
• estimation of the financial impact of the occurrence of
i. Risk identification; each risk
ii. Risk assessment; The gathering and refinement of this information will
inform the finalisation of the Risk Allocation process as
iii. Risk allocation;
well as provide information for the PSC and Partnership
iv. Risk mitigation; and Model.
v. Monitoring and review.
SIMPLE VERSUS MULTIVARIABLE ANALYSIS
There are many methods available for quantifying risk, however, for the purposes of developing the PSC, only two
are recommended. The most ‘simple’ method is the subjective assessment of the probability for each risk. Although
a user-friendly method, a limitation of the simple probability technique is that it provides a single estimate for risk
that is based on analysing risks independently of each other. The weighted effects of each risk are accumulated to
provide the most likely outcome risk adjusted PSC.
The second method is based on multivariable analysis, and typically involves the use of computer-based simulation
packages. Though more complex and still subjective, greater realism and confidence in risk quantification can be
achieved by applying probabilities to the risks and considering the interdependencies between the risks. Probability
analysis overcomes the limitations of the simple approach by specifying a probability distribution for each risk, and
then considering the effects of the risks in combination. The result of the analysis is a range of values in which the
final outcome may lie.
The expression of risk as a range of final outcomes is far more useful in terms of understanding Government’s
exposure to risk volatility, and in demonstrating the robustness of options with regard to risk transfer and
management. This information forms the foundations upon which appropriate risk management strategies can be
developed to mitigate and reduce Government’s risk exposure. Adopting this technique for the Project may also
assist in the process of bid evaluation, where bids are close to the PSC.
The risk quantification technique adopted for a particular project or risk depends on the significance of the project
and the complexity of the risks within it. When selecting a risk quantification technique, factors that need to be
• relative impact of the risk on the project;
• size of the project; and
• complexity of the project.
For example, a relatively simple project such as a car park is unlikely to warrant sophisticated probability valuation
techniques, while a more complex project, such as a hospital, may warrant such analysis. However, this example
may be overly simplistic, as a car park project may be structured to transfer significant usage risk to the Private
Sector, in which case it may be advisable to carry out an advanced analysis on the volume projections.
No matter the risk quantification technique used, particular care must -be taken to ensure that the quantification of
risk is robust and defensible. Outputs from the risk quantification are only as good as the assumptions on which it
is based, and it is therefore vital that a robust methodology is carried out.
A1.1 PHASES FOR GATHERING AND REFINING forethought, and too early in the process. The
RISK INFORMATION identification of risks is less prone to these problems, and
the creative benefits of group work early in the
The majority of the risk information is gathered and development of the PSC outweigh the dangers.
refined in five phases:
Those who might be involved in the identification and
Phase One – Structured risk identification workshop – quantification of risks include:
(a) “core” service Operational Managers and
Phase Two – Structured risk quantification workshop – stakeholders;
(b) Departmental stakeholders;
Phase Three – Further refinement of the risk quantification
by Risk Experts; (c) IPT and Queensland Treasury representatives;
Phase Four – Risk Review Workshop; and (d) Project Managers;
Phase Five – Risk Modelling. (e) Technical Consultants, such as architects and design
The data gathered out of this process is documented in a
Risk Register. This may be a stand-alone document or (f) Financial and Legal advisers; and
contained within the PSC financial model. The Risk (g) the Risk Analyst.
Register is likely to be built up from the Risk Allocation
A list of risks to which the project may be exposed is a
Matrix. The Risk Register differs from the Risk Allocation
useful tool to help structure the brainstorming session.
Matrix in that the Risk Register contains the data upon
The Risk Management Supporting Document provides a
which the risk quantification is based.
useful starting point for developing this list.
A1.1.1 PHASE ONE – STRUCTURED RISK
The concepts of ‘risk’ and ‘outcome’ are often
IDENTIFICATION WORKSHOP – IDENTIFYING RISK
misunderstood. The key differences between these terms
Irrespective of the risk quantification technique used on a are as follows:
project, the sources of risk must first be identified.
• an outcome is a consequence of a risk such as
The risk identification process is potentially the most “delay”, “cost overrun”, “under-performance”; and
important and useful part of the risk valuation analysis. It
• a risk is an event that causes the consequence, such
brings considerable benefits in terms of understanding
as “failure to grant a right of way”, “poor ground
the project and its problems, as well as provoking thought
conditions”, “material defect”.
about the appropriate management response to risks,
including optimal risk allocation between parties. Accordingly, “construction cost overrun” is not a risk, and
therefore should not appear on the Risk Register. Instead,
The identification of risks is best done using a
a construction cost overrun should be identified as a
brainstorming session. Good practice in brainstorming
consequence of certain risk events.
sessions is not described here and it is recommended
that Agencies seek expert facilitation of the risk The output from this stage should be incorporated into a
identification and quantification (often forming part of the Risk Register that must include, as a minimum:
terms of reference for the Financial Adviser). • risks identified and categorised for ease of reference
The purpose of the brainstorming should initially be solely (individual risk identification tags can also prove
the identification of risks, with no risk quantification at useful for future reference);
this point. Quantification of risks is a complicated process • a preliminary Risk Allocation; and
and care must be taken to ensure that experts form their
own views after some consideration of the identified risks • identification of a “Risk Expert” for each risk whose
in the context of the Reference Project and the Raw PSC. role is to further refine the preliminary risk analysis in
terms of description, consequence, and numerical risk
The aim of the brainstorming session is to identify the estimates in the following stages of the risk
‘material risks’ (those risks that could have a significant quantification process.
cost impact (when considering the probability of the risk
occurring in combination with the likely cost of the During risk allocation, regard should be given to the Risk
occurrence). There is a danger that the group dynamics at Allocation principles contained in the Risk Management
the risk identification workshop may give rise to a Supporting Document. Queensland Government’s PPP
conformism of point of view, resulting in a simplification Policy is committed to optimal, rather than maximum, risk
of treatment and underestimation/overestimation of the transfer. Consequently, the identifiable risks of the project
level of risk. This is particularly the case if risk should be quantified and allocated to the party best able
quantification is done without sufficient preparation and to manage them. If a risk is to be retained by Government,
it is classified as a ‘retained’ risk. If the Private Sector Depending on the stage of development of the project and
would be better placed to manage the risk, the risk is time constraints, it may be possible to complete both the
classified as ‘transferable’. Note that retained risk will be risk identification and risk quantification workshops in the
added back to the Partnership Model to ensure same day.
comparability with the PSC.
To accelerate the workshop process it may be useful to set
Specialist commercial expertise will be required to some parameters for subjective descriptions of probability
support collation of the risk estimates, facilitation of the and impact. For example:
risk workshops and the risk modelling process.
A1.1.2 PHASE TWO – STRUCTURED RISK Boundary High Medium Low
QUANTIFICATION WORKSHOP – QUANTIFYING RISK
Probability of greater From 30% Less than
The quantification of risk should only be attempted after occurrence than 60% to 60% 30%
the Reference Project and Raw PSC costing exercise have
been completed. In the first instance, risks can be usefully Impact on $0.5m to $0.25m to $50K to
quantified using workshop techniques. This should occur Capital Cost $1.0m $0.5m $0.24m
after the Risk Experts have been given sufficient time to
individually consider the likely probabilities and impacts Impact on $50K to $25K to $10K to
of the risks. Recurrent cost $100K $49K $24K
Considerable analysis has been undertaken on the
psychological factors that give rise to error in the Note that the ranges above should not be used without
quantification of uncertainty, both in and out of workshop consideration of their applicability to the proposed project.
situations. When quantifying risks in a workshop They are examples only and would, for example, be
situation, some of the dynamics to be considered include: inappropriate for a $1 billion project.
Workshop participants are only required to agree whether
Term Description the risk should be classified as ‘High’, ‘Medium’ or ‘Low’
in terms of probability and cost impact, and whether the
Conformity When a group of people estimates a cost impacts on capital expenditure, recurrent expenditure
risk, group members tend to gain or both. These parameters provide a useful guide for the
unwarranted confidence from each Risk Experts to carry out the actual risk quantification in
other’s estimates. This results in the following phase.
groups giving a narrower range of The major outputs of the workshop are an understanding
estimates than when done of the project risks and a general indication of where the
independently. risks would lie, i.e. in the High, Medium, or Low category.
A roundtable discussion brings together the experience of
Bias More senior individuals at a session the risk participants such as engineers, architects and
are likely to influence others merely core service operators, who will assess the risk from the
by their presence. Most people will perspective of their own expertise. The workshop will aid
have a bias in a particular direction, in a better understanding of the risks for those involved in
but such biases tend to converge the project and act as a guide for the Risk Expert.
when a dominant person is present.
Risks that are difficult to quantify due to the high level of
Personality Where the loudest voice dominates, uncertainty in variables or the inherent nature of the risk,
and the quietest is not heard. (for example, risk due to changes in the Private Party’s key
personnel) should be classified as qualitative in nature,
and recorded as such.
To avoid such issues in a workshop environment, a Each risk is also analysed with regard to any correlations
preferred technique is to present preliminary analysis data with other risks , i.e., to determine the relationships (if
to experts before the session, and use the session, not for any) between identified risks.
the actual quantification of risk, but rather for discussion
A1.1.3 PHASE THREE – FURTHER REFINEMENT OF THE
on the level and logical structure of uncertainty and
RISK QUANTIFICATION BY RISK EXPERTS
correlations between risks. The aim of the brainstorming
session is to ensure that all participants leave with a The information gathered from the risk workshop process
common perception of the uncertainties of the problem, provides a useful starting point for the risk quantification
and that Risk Experts understand what is required of them exercise to be carried out by the Risk Experts.
in the next stages.
The Risk Expert will investigate risk more thoroughly, and
designate it a probability, usually within the
classifications of High, Medium or Low. The data required
varies, depending on the risk valuation technique
SIMPLE EVALUATION TECHNIQUE
Risk Experts should realistically assess the likelihood of
final costs to be above or below the amount included in
the Raw PSC. The number of point estimates used in
valuing the impact of risks (each having a different
expected consequence) should reflect the materiality of
the risk and the information available. Where empirical
evidence is unavailable or incomplete, commonsense
approximations may be used.
Impact of Risk = consequence x probability of occurrence
The quantification of each risk is then the sum of these
probability-weighted consequences (assuming that they
are all independent).
Consider the risk of plant and equipment price changes during the construction period. The following
probabilities and consequences have been estimated:
Assumption Probability Consequence ($’000) Impact of risk ($’000)
Below base amount 20% -5,000 -1,000
No deviation from base amount 10% 0 0
Overrun: likely 40% 10,000 4,000
Overrun: moderate 20% 15,000 3,000
Overrun: extreme 10% 20,000 2,000
Note: ‘base amount’ refers to the cost of the raw plant and equipment estimated in the raw PSC
Timing of risk:
• 100% during the construction period
Allocation of risk:
• Transferred to the Private Party
ADVANCED EVALUATION TECHNIQUE A1.1.4 PHASE FOUR – RISK REVIEW WORKSHOP
By this stage, the Risk Experts should be relatively
The primary purpose of the risk review workshop is to
comfortable with the task ahead. However, one potential
confirm the risk estimates and formulate risk management
problem may be reluctance on the part of the Risk Expert
and mitigation strategies. The risk review workshop
to provide probability distributions. People often consider
should, as a minimum, cover the following:
it more difficult to provide a probability distribution than
they do a single point estimate. In fact, there are two • identification of any further risks missed in the
components of uncertainty that are included in the process to date;
distribution: (1) the inherent uncertainty in the variable
• confirmation of the proposed Risk Allocation for each
itself, and (2) the uncertainty arising from the expert’s
lack of knowledge of the variable. In a risk analysis model
these are not differentiated, and it is the combined • a reality check of the risk estimates provided by the
uncertainty that is required for the model. Risk Experts; and
Reluctance in estimating a probability distribution can • formulation of risk management and mitigation
arise from the expert’s assumption that lack of knowledge strategies.
should not be included (whereas in fact there is no
At the end of the risk workshop, participants should sign
alternative – there is no perfect expert). The following
off the Risk Register so that the risk modelling exercise
points should be highlighted to the Risk Expert:
can be completed and incorporated into the PSC.
(a) providing a distribution for a variable does not require
A1.1.5 PHASE FIVE – RISK MODELLING
a greater knowledge of the variable than a single point
estimate. By contrast, a distribution gives the expert a The first consideration in model design is how the risks
means to express their lack of exact knowledge; should affect the structure of the model. For example,
(b) estimation of a probability distribution does not although a cash flow model might normally be modelled
require any great knowledge of probability theory; in yearly units, the risks may well be quite different in
summer to those in winter. In this case, it makes much
(c) all that can be expected of them is that they are 90% more sense to separate the years out into halves or
confident that the risk outcome will lie somewhere quarters for the purposes of the risk analysis. This is a
within their estimation of the risk; and matter of judgement, but in large risk projects simple
(d) there will be an opportunity to revise the estimates of prototypes may need to be constructed with different
individual risks at a later stage, particularly if they are levels of detail to see what the impact the model structure
found to be significant drivers of the overall risk has on the outputs. Another factor to consider in
adjustment. structuring the model is the timing of the risks and when
they are to occur for each Project Delivery Option, and
Considerable reluctance can also be overcome by careful how to combine and link the risks where correlations have
phrasing of a question. For example, if trying to solicit the been identified.
rates of failure of an average contractor against a service
requirement, it makes much more sense for a group of
people to be asked, “Over the last ten year period, how
many failures have you had with your present contractor?”
and “How good do you think your contractor is, relative to
the average?” rather than “What is the rate of failure of an
ADVANCED RISK QUANTIFICATION TECHNIQUE – EXAMPLE
An example of how a risk is quantified using an advanced evaluation technique is as follows:
a) Phase 1 & 2 – The risk identified during the initial risk workshop is ‘Risk of adverse geological ground
conditions’. The workshop participants assess this risk as having a ‘Low’ probability of occurrence and a ‘High’
capital cost impact if the risk were to eventuate. The risk was assessed as a ‘transferable’ risk.
b) Phase 3 & 4 – The Risk Expert undertook a further review of the risk, placing a probability within the ‘Low’ range
at 15% likelihood of occurring, and making a three point estimate representing the ‘Best Case’ ‘Most Likely Case’
and ‘Worst Case’ at $250,000, $325,000 and $600,000. The true distribution of this risk is not known and
therefore a simple triangular distribution has been selected for modelling purposes. The Risk Expert estimates
that the risk would occur once (or it may not at all) during the construction phase, i.e., if the risk were to occur at
the beginning of the construction phase, it does not occur again.
c) Phase 5 – These details are entered into the risk model. When the risk simulation is run, this risk will only occur
once (if at all) during the construction period. During simulation, a value of zero will be selected 85% of the time,
with the remaining 15% of the simulation runs will to be a value from the distribution, as described by the Risk
A1.2 EXAMPLES OF GRAPHICAL
REPRESENTATION OF RESULTS
A1.2.1 SIMPLE EVALUATION TECHNIQUE
The following table details the results of the risk
quantification using the simple evaluation technique:
(All amounts are NPV in $ millions) NPV $m % of risk adjusted PSC
Total non-risk adjusted Project Cost (excl. GST) 324.096 72%
Retained risk 10.383 2%
Transferable risk 114.267 25%
Total risk adjusted Project Costs (excl. GST) 448.746 100%
A1.2.2 ADVANCED EVALUATION TECHNIQUE
The following table details the results of the advanced
probability analysis based on the same example. These
are expressed as:
• “Best Case”, representing the 5th percentile
confidence limit. In other words, 5% of the simulation
results for the valuation of risk improved on this
outcome (i.e., were lower than this outcome) and 95%
of the results exceeded this outcome (i.e., provide a
greater value for risk than this outcome);
• “Most Likely Case”, representing the arithmetic mean
of the simulation results. The Most Likely Case is used
to determine the NPV of the risk adjusted PSC against
which the Private Sector bids will be evaluated.
• “Worst Case”, representing the 95th percentile
confidence limit. In other words, 95% of the
simulation results for the valuation of risk improved
on this outcome (i.e., were lower than this outcome)
and 5% of the results exceeded this outcome (i.e.,
provide a greater value for risk than this outcome).
(All amounts are NPV in $ millions) Best Case Most Likely Case Worst Case
Total non-risk adjusted Project Cost (excl. GST) 324.096 324.096 324.096
Retained risk 0.460 10.585 29.629
Transferable risk 25.290 117.479 246.177
Total risk adjusted Project Costs (excl. GST) 349.846 452.160 599.902
The difference between the Best Case and the Worst Case represents the 90th percentile Confidence Limit within which
the final outcome of the Project is likely to fall. This is effectively the measure of the volatility that Government is exposed
to under the PSC.
A bar chart can also be useful to illustrate the range of the risk adjusted PSC:
Risk adjusted PSC
600 Retained Risk
500 Transferable Risk
400 Raw PSC
Best Case Most Likely Worst Case
RISK ADJUSTED PSC
Presenting the risk adjustments
The risk adjustments can be presented in a number of
ways. Examples of two of the more common presentation
formats are shown below.
A table that represents risk as a percentage of the total risk adjusted PSC can be useful in showing the spread of
risk between the Best, Most Likely and Worst Cases.
Description Best Case Most Likely Case Worst Case
Retained risk 0% 2% 5%
Transferable risk 7% 26% 41%
Total risk 7% 28% 46%
Note that the range between the “Best Case” and the “Worst Case” are for illustrative purposes only, and each
project will differ in its range.
The cumulative distribution chart, shown below, can be generated for both retained and transferable risk. Such
charts are useful in showing the probability of the value of risk between certain outcomes. For example, the
Transferable risk chart shows that the percentage likelihood of retained risk having a cost impact of less than
NPV$100 million is estimated at approximately 55%.
Distribution for Transferable Risk
x <= 25289.78 x <= 246176.81
0.9 Mean = 117479.3
0 100 200 300 400
Values in Thousands
construction, finance and ongoing maintenance of the
APPENDIX 2 – PPP MODELS
facilities required to provide the operational services. This
model incorporates greater Risk Allocation and includes
There are a number of Australian and international
financing risks borne by the Private Sector.
precedent models for Private Sector participation in the
provision of services. Broadly, there are five categories of DESIGN, BUILD, MAINTAIN, FINANCE AND OPERATE (DBMFO)
PPP model that should be considered: This model includes all of the features of the DBFO model.
• Wholly Private Sector provider service models (e.g., It is still usually a mixed service model that includes the
public transport franchise); provision of some supporting infrastructure services such
as general estate management and soft facilities
• Mixed service models management services, although the exact scope of such
• Wholly privately financed models services may vary.
• Mixed finance models FRANCHISE MODEL
This model is typically used for transport type projects,
• Publicly funded models
where a certain amount of revenue risk is borne by the
Some suggested PPP models are described below (note Private Sector but where, equally, Government may need
that this list is not intended to be exhaustive): to subsidise the services. The Franchise model is usually a
wholly Private Sector serviced and financed model.
DESIGN, BUILD AND OPERATE (DBO)
This model is essentially publicly funded, (with the REGULATED
possible exception of short term construction financing) This model was used extensively as the premiere model
and is probably the simplest of the PPP models. It for the power transmission and distribution industry in
includes the provision of the infrastructure asset via a Australia. A regulated market is usually necessary for this
Design & Construct lump sum contract, coupled with a type of asset class, due to the monopoly status of the
maintenance contract. This is also likely to be a mixed service. This is usually a wholly Private Sector serviced
service model with the Public Sector retaining and financed model.
management of the core operations, resulting in a
significant level of interface between Public Sector and
Private Sector service delivery. An example of this model Under the Market model, the Private Sector assumes all
is a simple serviced infrastructure arrangement that might risks for the project including product pricing, supply and
be put in place for office accommodation. demand. One example is a concession provided by
Government to the Private Sector to exploit natural
DESIGN, BUILD, FINANCE AND OPERATE (DBFO) resources or to generate power supply into a spot market.
This option builds on the DBO model and includes greater This is always a wholly Private Sector serviced and
risk transfer coupled with the provision of finance by the financed model.
Private Sector (although this could also be structured as a
The following diagram illustrates the range of services that
mixed finance model). The DBFO is usually a mixed
may be provided in respect of a new prison facility,
service model with the Private Sector’s participation in
utilising some of the aforementioned PPP models.
service provision generally limited to the design,
Potential PPP Models
Service Requirements Identified
Education & Training
Medical & Health
The arrows below illustrate how the various PPP models could
encompass the service requirements identified:
APPENDIX 3 – EXAMPLE OUTPUT
The following are ‘cut-down’ examples of Output
Specifications, designed to highlight the type of
information that may be including within this document.
Detailed examples are available from the IPT and from
various online PPP resources.
OUTPUT SPECIFICATION EXAMPLE – WATER PROJECT
WASTE WATER TREATMENT
The Service Company will be required to provide Services relating to the treatment of waste water from the defined
The Service Company will be required to treat and dispose of all sewage sludge generated as a result of the
proposals for the treatment of waste water derived from the defined catchment.
STORM WATER OVERFLOWS
When developing solutions for storm water overflows, the Service Company shall, at all times, develop river
quality models and sewer hydraulic models to the satisfaction of environment standards.
MEASUREMENT AND SAMPLING EQUIPMENT
All equipment provided for measuring, testing, sampling or monitoring the volume, strength, quality or
characteristics of influent, effluent, or sludge, or concentrations of odours, shall comply with applicable defined
WASTE WATER TREATMENT – SAMPLING AND MONITORING
The Service Company will be required to take and test daily composite samples of the influent and effluent of each
treatment plant. The Service Company will be responsible for ensuring that the adopted waste water sampling
programme meets the requirements of the relevant water authorities.
FLOW MONITORING EQUIPMENT
The Service Company will ensure that the accuracy of the flow monitoring equipment is checked by an
independent party every three months for the first year of the Contract Period and annually thereafter. If an
inaccuracy is found at an annual check, then checks will revert to a three-month interval for a period of no less
than one year.
OUTPUT SPECIFICATION EXAMPLE – HEALTH PROJECT
CAR PARKING SERVICES
Project Co shall provide Car Parking Services, include:
• the provision of car parking;
• the management of the Facility car parks;
• traffic control within the Site; and
• the management of administrative procedures associated with the provision of the Car Parking Services.
Project Co shall provide the Car Parking Services:
• in accordance with this Service Specification and defined Service Standards;
• in accordance with core service operator’s reasonable requirements from time to time.
In providing the Car Parking Services, Project Co shall:
• provide and maintain all facilities, equipment and signage necessary for the provision of Car Parking Services;
• provide, maintain and replace as necessary access and egress equipment or facilities (mechanical or otherwise)
required for the provision of the Car Parking Services, including barriers to the staff car parks;
• ensure all equipment and barriers in the car park are fully operational at all times;
• keep the entrances and exits and all internal roadways within the car parks clear at all times from vehicular or
• ensure that all entrances and exits to the car parks are adequately controlled;
• ensure that where a payment system is used for car parking, records are maintained
In providing Car Parking Services, Project Co shall:
• provide and be responsible for traffic control procedures within the car park and across the Site to ensure free
traffic flow and access to the Hospital and the Facility at all times;
• ensure that entry to any “permit holder only” areas of the Car Park is restricted to authorised persons or permit
• follow appropriate action and reporting procedures with regard to observed or reported instances of vehicle
theft, theft of property from vehicles, damage or vandalism;
• provide supervision and assistance to users of the car parks in relation to passenger set down, parking and
traffic flow through the Site;
• implement and carry out any car accordance with Southern Health policies; and
• take reasonable steps to ensure that car drivers comply with traffic control measures on the Site.
STAFF CAR PARKING
Project Co shall ensure that appropriate provision is made for core services operator’s employee car parking (300
Project Company shall:
• provide a scheduled and reactive Cleaning Service on a day to day basis to meet the requirements of
Government in all Areas of the Site in accordance with this paragraph of this Service Level Specification and the
• ensure the routines and government processes in all Areas are not adversely affected by the Cleaning Service;
• undertake Specialist Cleans at no less than the frequencies indicated below:
Aseptic Suites Weekly
Laboratories Annually By Arrangement
• comply with the standards laid down in:
– relevant Guidance Materials and any subsequent issues of this guidance in the cleaning of aseptic areas;
– safe working and the prevention of infection in clinical laboratories – model rules for staff and visitors;
• ensure Domestic Staff working in Clinical Areas receive training for working in such Clinical Areas;
• ensure safe working practices are followed in public areas, laboratories and corridors;
• ensure that meeting rooms are cleared of all function hardware and crockery and waste promptly and efficiently,
and in any event prior to the commencement of the next meeting;
• liaise frequently with the relevant Government Employees to confirm Access Times to the meeting rooms and
notice of meetings ending; and
• provide the Cleaning Service to the Areas during the Access Times set out below provided that Government may
require Project Co to provide, in writing, more precise Access Times:
AREAS ACCESS TIMES
Office Areas – Outside the hours of 9.00 a.m. and 5.00 p.m.
Outpatient Areas – Outside the hours of 8.00 a.m. and 5.00 p.m.
Theatres – Outside the hours of 8.00 a.m. and 5.00 p.m.
Ward Areas – Outside the hours of 7.00pm and 7.00am
Laboratories, Entrances and Toilets – Outside the hours of 9.00am and 5.00pm.
Public Areas – At any time, provided that Project Co has a due regard to the operation of the Hospital
Project Company shall provide a planned and ad-hoc Waste collection service in accordance with the Service
Standards to this Service Level Specification.
Collections shall be at a frequency such that refuse containers achieve no than more than % capacity and, in any
event, at least daily.
Project Company shall collect Waste in accordance with Policies, the Waste Management Service Level Specification
and the requirements of the Waste Regulating Authority.
Project Company shall implement security procedures to ensure that Confidential Waste is collected and disposed of
according to Policies.
Refuse storage areas, both internal and external shall be:
• segregated in accordance with relevant procedures;
• kept clean, free from loose litter, malodour, spillages and debris;
• free from pests and vermin;
• secure and with access restricted to authorised personnel only; and
• stored to minimise the risk of fire.
MEDICAL GAS SERVICE
Project Company shall establish an effective and user-friendly system to provide Medical Gas Services. Project Co
shall be responsible for the full provision of appropriate medical gases (both portable and piped) in all patient
treatment areas throughout the facility. Duties shall include, but not be limited, to:
• maintaining appropriate safe stock levels in liaison with wards and departments;
• ordering, receipt and storage;
• the loading/unloading and exchange of cylinders at service points;
• maintaining gas pressure records; and
• collection of empty cylinders from Site(s) and transportation to central collection point.
Project Company shall be responsible for ensuring that only staff trained in the handling, storage and supply of
medical gases will undertake duties associated with them. Appropriate training records shall be available for
inspection by the Sponsor Representative.
OUPUT SPECIFICATION EXAMPLE – EDUCATION PROJECT
A school design that will inspire all who use it day-to-day, and which will also make a positive statement to the
community. The design of the school must also meet all other requirements of this Output Specification in respect of
technical and operational performance, compliance with regulations, safety, and so forth.
GENERAL QUALITY STANDARDS
Bidders are required to demonstrate that their designs for the school:
• Maximise the potential of the site.
• Locate new building on the site in a manner that will permit possible future extensions.
• Create spaces, where appropriate, that combine functionality with an environment that will stimulate and
inspire young people.
• Make creative use of natural light and materials.
• Embody the school’s vision statement.
• Have imaginative design of social spaces, both internal and external.
• Are sensitive to the local environment/context.
• Are appropriate to accommodate listed buildings or conservation areas where applicable.
• Allow for repair to existing buildings, if appropriate, in sympathetic materials.
• Produce clarity – for example, the juxtaposition, physical design and planning logic of entrances, main
circulation routes and key spaces should minimise the requirement for direction signage.
• Use materials and finishes chosen and detailed in a manner to avoid weather staining which would detract
from the appearance of the building
• Are, with regard to building services, based on careful selection and location of components to achieve
physical integration with the architectural and structural design.
• Maximise flexibility of space and usage capability. A method statement is required from bidders on the
capability of premises to respond to change over time. In particular, account must be taken of changes
resulting from small variations in pupil numbers, changes affecting dual use of facilities, curriculum changes
(influencing, for example, services requirements and acoustic separation of spaces), new IT requirements,
security techniques, and environmental performance.
PERFORMANCE REQUIREMENTS FOR SPECIFIC ELEMENTS
• The entrance area for the school shall create an appropriate sense of arrival and welcome for pupils and
visitors, and shall be of adequate size for peak use.
• Advisory: there shall be one supervised and clearly identified entry point to the buildings for visitors.
• Entry/exit points for pupils must be strictly controlled.
• The design of internal circulation spaces shall form part of an overall architectural concept and strategy, a
hierarchy of spaces with a clear organisation and identity. These spaces must not be institutional in character
and should be enlivened by views of activities and into rooms where appropriate.
• Corridors and circulation areas must comply with Fire Safety requirements (see School Premises Regulations
and Constructional Standards).
• All structural engineering design must be to relevant Codes of Practice. It is the responsibility of bidders to
ascertain required floor loadings for specialist areas.
• Noise of rain on certain roofing materials must be considered, and a solution to abate such noise
• Roof glazing must be provided with means to control solar gain and glare if appropriate, and safety
arrangements incorporated for external access.
• Windows must comply with relevant directives on glazing and workplace regulations.
• All windows must be safe in closed or open positions, and must combat solar gain and glare at all times.
• Where significant areas of external glazing are exposed to direct sun, Bidders shall provide peak summertime
temperature analysis. Where projected temperatures are excessive, steps shall be taken to mitigate them.
• Large windows with low sills providing vistas to the outside are desirable.
• All doors in the school buildings must be suitable for their intended purpose, and be sized to meet the
anticipated movements within the school.
• Locations and requirements for doors for building compartmentation must be agreed with the Fire Authority.
Fire standards must be in accordance with relevant School Premises Regulations and Constructional
• Doors must be designed to allow disabled access where appropriate, including access for motorised electric
wheelchairs (new facilities only).
• All doors must have vision panels where appropriate in new-build situations.
• Separate doors are required for deliveries where use of general access routes would create excessive
disruption to the operation of the school.
• Finishes, carpets, etc. for new facilities, and repairs to existing finishes, must be chosen in line with the
Council’s Environmental Policy (available in the Data Room), and must meet the environmental standards for
computer specialist use areas.
• Design and choice of finishes must be used to control noise, particularly adjacent to rooms where ambient levels
need to be minimised (music, exam rooms).
• Suitable colour schemes and textures must be provided to assist people with visual or hearing impairments.
• Suitable barrier matting must be provided and maintained at external entrances.
• In some areas, particularly robust finishes are required to withstand heavy usage.
• Pipework, cables and equipment should be easily accessible for maintenance but, wherever possible, hidden
from view and made tamper-proof.
A school design that will facilitate the successful delivery of the curriculum, and meet all other educational and non-
educational requirements as set out in the Output Specification.
Requirements with respect to:
– teaching space requirements;
– non-teaching requirements, including sanitary, medical, storage and preparation areas;
– administrative accommodation;
– community facilities; and
– external space.
Room data sheets are not provided for existing accommodation. If bidders intend to retain existing spaces, output
requirements for environmental and other performance must nevertheless be met.
GENERAL QUALITY STANDARDS
Bidders’ attention should be drawn to detail which gives guidance on school accommodation.
Spatial relationships must be as required by the Sponsoring Agency. Spaces must perform as required by room data
sheets. Bidders are expected to pay particular attention to the need for different types of storage in the school,
which should be well integrated and contribute to the good performance of the building. Room data sheets refer to
the particular requirements per space.
Teaching rooms should normally be of square or rectangular plan (of proportion approximately 4:5) unless there are
special reasons for designing otherwise.
Bidders must assess peak loading in circulation spaces and functional relationships within the facility in order to
avoid overcrowding. This assessment must take account of safety of occupants, use patterns, functional
relationships between different parts of the building, and location of staff and pupils in relation to toilet facilities.
OUTPUT SPECIFICATION EXAMPLE – ROAD/TRANSPORT PROJECT
The Private Sector will be required to deliver the required outcomes for the project by meeting the commercial
terms outlined and in the specified timeframes. In doing so, the Private Sector will be required to:
• transfer the appropriate risks from Government to the Private Sector.
• achieve safety in design that incorporates the requirements of the users of the infrastructure.
• design and construct the infrastructure to meet defined environmental requirements
• incorporate innovative practices in delivery, design and management.
• ensure that the infrastructure is handed over in the specified condition at the completion of the period.
• maintain effective management systems for Occupational Health Safety and Welfare; and
• comply with the “National Code of Practice for the Construction Industry” and its “Implementation Guidelines”,
published by the Australian Procurement and Construction Council Inc.
The Private Sector will be responsible for the total infrastructure. Responsibilities will include, but not be limited to,
the following activities:
• design and construction;
• ensuring the infrastructure is fit for its intended purpose;
• environmental, safety, functional and technical requirements;
• statutory approvals;
• arrangements to ensure minimal disruption to local and through traffic;
• maintenance of the existing capacity of all arterial and local roads;
• preparation of plans to ensure delivery of the project requirements;
• implementation of marketing and community involvement plans
• repair of all defects for the concession period;
• operation for the concession period;
• maintenance for the concession period; and
• hand over in a condition consistent with the specified requirements at the conclusion of the concession period.
In particular, the Private Sector is to undertake the following tasks:
• development of a detailed design that complies with the environmental, safety and technical requirements;
• provision of all temporary, permanent and associated road works;
• provision of a strategy to ensure that traffic flow suffers minimal disruption;
• ensure that the completed structure complies with the Output Specifications;
• development of a strategy that ensures the safety of the users and the public is maintained;
• development of incident response protocols;
• development of a strategy to ensure a positive relationship with stakeholders and the local community
throughout the construction and operation phases of the infrastructure;
• develop a maintenance strategy which meets the Output Specification;
• develop a environmental management system which meets the Output Specification;
• develop a project schedule which allows for commissioning and opening of the infrastructure at the earliest
• develop a project-specific Occupational, Health and Safety Management System in accordance with relevant
acts and regulations;
• comply with all appropriate industrial relations industry awards; and
• provide and maintain appropriate insurances.
FOR FURTHER INFORMATION:
INFRASTRUCTURE PARTNERSHIPS TASKFORCE
Department of State Development
PO Box 168
ALBERT STREET BRISBANE 4002
Phone: (07) 3224 2971
Fax: (07) 3224 2978