4.2  Project affordability

The Policy sits within each government's budgeting and asset management framework. PPPs are not a means of pursuing unfunded programmes or projects (unless completely user-pays).

The Policy requires governments to commit to investing in a particular programme or project as a strategic priority prior to its development as a PPP arrangement. This commitment ensures that the prioritisation of public sector projects is not distorted by the availability of private sector finance.

Unless a project is self-funding (e.g. a toll road) or is funded by a non-budget sector agency (e.g. a GBE), a capital budget allocation (normally for the capital amount) is required for a project to proceed to market under any form of procurement (PPP, Alliance, D&C). The provision of a capital allocation at the outset ensures that:

•  all potential projects need to compete for the same finite funds, thus ensuring that projects are appropriately prioritised in terms of strategic importance; and

•  delivery models are not prejudiced due to their perceived budget impacts.

It also ensures that if value for money is not achieved via a PPP tender process, the investment can go ahead under a different procurement methodology.

During the business case stage, and again prior to committing to any PPP arrangements, Governments need to ensure that the affordability issues associated with long terms payment obligations have been clarified and confirmed. The balance-sheet treatment of a project is not a reason for using a PPP delivery approach. Under current accounting standards the majority of PPP projects will be recorded on the Government's balance sheet.