It is high time the public sector comparator was banned for certain types of proven deals - it served its purpose but now only clouds the poor quality of public debate.
The PPP/PFI process is, in some respects, modelled on an experimental science; the basic approach to any potential deal is not to prove that it will deliver the best value for money (but rather that the alternative, traditional delivery by the public sector, will not. This distinction is important as it implies a default setting of ‘no change’. The PSC is the best attempt by the public sector deal team to model the likely result of the traditional alternative deal. The model includes not only the best attempt at creating a solution but also the full, risk adjusted financial consequences of the deal.
The analysis is then compared with all the bid alternatives to see if in fact the traditional alternative delivers the required result better.
In creating this comparator, there is a widespread belief among practitioners that the analysis is a biased conservative estimate of the VfM for three reasons. First, the true data on likely costs of a public sector delivery is difficult to verify in a forensic sense and there is a tacit belief that whatever the available data implies is materially worse than would be the case in this particular public sector deal; it is accordingly ‘adjusted for experience’. Secondly, the desired outputs specified at the inception of the process are frequently to a level of quality and consistency not previously delivered in the public sector – with the result that predicted costs and risks are understated through lack of prior experience. Thirdly, there is the issue of an inappropriately low discount rate – but that is for another, wider debate’
The result is a conservatively biased estimator that has the virtue of protecting the public services from unwarranted change but understates the ‘true’ relative VfM of bids through underpricing the traditional alternative.
In many sectors we have a body of evidence that PFI produces significantly positive VfM when compared to their PSCs. Given the biased analysis, surely we have reached the point ? for these deals at least ? that the use of a PSC causes unnecessary delays and does not deliver value for money.