The State of the Practice of Value for Money Analysis in Comparing Public Private Partnerships to Traditional Procurements

Abstract

Literary sources regarding public—private partnerships (PPPs) often mention the importance of conducting a value for money (VfM) analysis to determine the value of pursuing a project through a PPP versus a traditional procurement; however, few sources detail how agencies actually use this analysis in practice. This article provides a state-of-the-practice review of VfM analysis using examples from Australia, Canada, Europe, Africa, and Asia, focusing particularly on the VfM model used by agencies such as Partnerships Victoria, The United Kingdom's Her Majesty Treasury Department, and Partnerships British Columbia. Despite its growing applications in PPP projects from all different sectors, VfM has faced significant criticisms from academics and practitioners. This article evaluates reviews of VfM, noting the weaknesses and strengths of the methodology. Using the information derived from the evaluation, this article provides a guided reference for public agencies looking to adopt this VfM methodology in their current PPP decision-making framework.

A Public Sector Comparator (PSC) for Value for Money (VFM) Assessment Tools

“…As of the strategy formulation phase, the aspects chosen at this stage show that wider factors need to be taken into account during the VFM assessment process that comprises the aspects of economy, efficiency and effectiveness of the projects. This is parallel with the arguments by Morallos & Amekudzi (2010) that state that the criteria in PSC are poorly defined and do not even disclose the uncertainties involved in the calculation thus could be manipulated to obtain the desired results. Treasury (2006), elaborates at the procurement stage the VFM assessment should focus on the effects of the whole projects conditions that could not be assessed during the financial assessment for instance environmental; social benefit; end user benefit and health & safety issues.…”

“…Many practitioners argue to place equal importance on the non-financial aspects that affect the achievement VFM. For instance, in US the VFM analysis included both a financial and non-financial assessment (Morallos & Amekudzi , 2010). Subsequently, Table 2 shows the results of eight (8) of non-financial aspects which had been declared by the respondents as the most significant aspects should be taken in strategy formulation phase.…”

Do Public-Private Partnerships Create Value for Money for the Public Sector? The Portuguese Experience

“…What is necessary here is a comparative analysis of the costs of the different solutions for the same outputs, in order to make comparisons with the bidder's cash flow. Moralos and Amekudzi (2008) argue that value for money aids public agencies in determining whether to pursue a project as a public-private partnership rather than through traditional procurement procedures, as long as they can account for the costs and savings throughout the project's lifetime. Value for money should also ensure that the public sector is focussed on the quality and competence of the private sector work and not on the lowest bid.…”

Quantifying a Financially Sustainable Strategy of Public Transport: Private Capital Investment Considering Passenger Value

“…If the value is positive, the project should be chosen. Otherwise, the project should be dropped [37]. The definition given by the UK's HM Treasury is 'optimum combination of whole-of-life' costs and quality (or fitness for purpose) of the goods or service to meet the user's requirement [38].…”

“…Therefore, governments at all levels have to face the problem of maintaining service quality and keeping the focus on qualitative analysis [12,17,28,36]. The quantitative studies mainly focus on value for money (VFM) analysis of infrastructure construction and cost-benefit analysis (CBA) [17,[31][32][33][34][35][36][37]. The concept VFM may differ between agencies.…”