1.7  The Decision Tree

The table below provides an overview of the decision process for developing the Discount Rate:

Figure 1 - Methodology Decision Tree

The Methodology is not entirely formulaic and a number of judgements are required.  A structured and robust process, including the use of objective information, is provided to guide practitioners in the exercise of judgement.  The process should be transparent and a rational justification should be provided to support decisions made. The experience gained in the application of the NSW Discount Rate Guidance and the Draft Commonwealth Guidance, on which the NSW guidance was based, has provided a detailed insight into the nature of Systematic Risk as it applies to Australian PPP projects and has been used in the development of this guidance, in both:

•  supporting an assessment of Systematic Risk transferred for each project; and

•  providing practitioners with an evidence base to support assessment of Systematic Risk transferred

Focusing attention on the allocation of Systematic Risks should enable more productive negotiations between the Public Sector and the Private Sector and allow shared understanding of the price of risk.

Applying the Methodology will ensure that:

•  the choice of preferred procurement option is made with an appropriate Discount Rate(s);

•  decision-makers understand how the Discount Rate was arrived at; and

•  the appropriate Discount Rate is used for a given set of cash flows and risk profile.

The suite of publications comprising the Guidelines is as follows:

•  National PPP Policy Framework

•  National PPP Guidelines Overview

•  National PPP Detailed Guidance Material

Volume 1 : Procurement Options Analysis

Volume 2 : Practitioners' Guide

Volume 3 : Commercial Principles for Social Infrastructure

Volume 4 : Public Sector Comparator Guidance

Volume 5 : Discount Rate Methodology Guidance

Volume 6 : Jurisdictional Requirements

Jurisdictional Requirements Documents will provide details of individual jurisdictional requirements and will need to be read in conjunction with the Guidelines.

In addition, there is a National PPP Policy Framework that details the scope and application of the Guidelines across jurisdictions.