Current Issues that impact on Project Affordability and VFM

1
Current Issues that impact on Project
Affordability and VFM
Ben King Financial Partnerships Unit
2
Overview

• House Rules
• Current Issues
• QA

3
House Rules VFM / Affordability

• Should be tested and assessed at each key
  milestone
• - OBC / OJEU / PB / FBC
• VFM
• - Importance of defined scope / risk transfer
  interface
• Affordability
• -First year AND every year / transparency
  clarity
• Public Sector must try and control / manage
• Minimise the inevitable delay!

4
Insurance

• Pricing and Availability VOLATILE / UNCERTAIN
• Public Sector want vs what Private Sector can
  deliver (OGC side letter)
• PuK / HMT consulting (standardisation of
  deliverable benchmarking arrangements for opex
  insurances)
• SE providing input
• Importance of Balance Sheet Test
• Be aware of SPV / FSA issue

5
Best Value Funding Solutions

• Concession length vs Optimal Debt length
• - RSG, Tenor and Tail of loan
• - Lifecycle / Handback / Flexibility
• Payment Arrangements
• Evaluating senior debt options
• - Bank / Bond
• - Level playing field qualitative and
  quantitative.
• Key element assessed in PB KSR
• Funding competitions guidance

6
Phased / Interim Payments

• Economic benefit
• - Risk transfer vs budget availability
• - Lifecycle / Handback / Flexibility
• Develop in competition but limitations as full
  project scope unknown
• - Consider contractual / financial / STUC
  implications
• Relationship to RSG
• - Circular to Councils
• - Annex B clarified / ITN drafting
• Must be a Council driven agenda

7
Calibration

• Project bespoke flexible area
• Influences funders views on performance /
  termination
• Develop calibration model
• so Council / Bidders / Funders understand
  implications of
• performance deductions
• Warning notice levels / Duration
• Repeat Failure tolerances
• Minimum deduction levels / GSUs
• Unless shared with Bidders, contentious
• Key to VFM pricing and an affordable project

8
Avoiding Re-scoping

• May address affordability but could compromise
  VFM?
• Clarity / Deliverability / Correctness of initial
  scope fundamental to project success
• Constraints in market
• Refurbishments
• Correct use of BaFO
• Planning / site issues addressed early on
• - Funders / SE wont accept these risks NOR
  should Councils
• Council Management / Dialogue Key
• Market Failure / Market Abuse monitored in future

9
Questions and Answers

• Or. peace quiet / tea coffee!