Value for Money Analysis
Value for Money: Quantitative Assessment of Design-Bid-Build Versus Public-Private Partnerships
Governments around the world have sought a framework to aid in their decision of whether to use a Design-Bid-Build (DBB) or Public-Private-Partnership (P3) infrastructure procurement method. The best way to do this would be an analytical study to determine the present value of the project to the city, but it is often difficult or impossible to obtain the data for a full study. The most popular of these analytical proxies is called a Value for Money Assessment (or VFM). A Value for Money Assessment consists of a comparison of the estimated costs of delivering a public infrastructure project using alternative financing and procurement relative to the traditional public sector project delivery method.
Infrastructure Ontario (IO), owned by the Province of Ontario, Canada is reputed to have been most success applying VFM to its infrastructure project procurements. Deloitte LLP provided a detailed analysis of the IO VFM methodology in its February 20, 2015 report to IO, Assessing Value for Money: A Guide to Infrastructure Ontario’s Methodology.
There are drawbacks to VFM analysis. VFM requires a significant number of risk adjusted cost estimates and assumptions to power the VFM outputs. Unfortunately, those estimates and assumptions are not based on provable and repeatable outcomes, but instead on the estimator’s personal experience. This tends to make VFM conclusions only as good as the estimator’s assumptions, which themselves are not amenable to verification. As Deloitte notes, “In the absence of a single comprehensive database that reliably tracts the occurrence and impact of project risks, IO relies on the professional experience and judgment of external advisers to quantify risks under each delivery model.”
While imperfect and heavily assumption driven, no other proposed procurement assessment methodology seems to have garnered more support than VFM. Whether VFM reflects the biases of the external advisers, or reflects a reasonable approximation of empirical data remains to be seen. Ontario Infrastructure, and other international infrastructure procurement officials see VFM as a useful tool for infrastructure project procurement decisions.