3.2  The Reference Project

As noted above, the PSC is the estimated whole-of-life cost of delivering the Reference Project. The Reference Project represents the most efficient means of delivering the output specification. The output specification describes the range of services to be delivered and the performance requirements.

The Reference Project should:

•  reflect the most likely and achievable procurement approach by the relevant department to satisfy all elements of the output specification if the project were to proceed on a traditionally funded basis; and

•  provide the same level and quality of service as expected to be provided by bidders to enable a like-with-like comparison.

The details of, and issues associated with, the development of the output specification are examined in further detail in the Practitioners' Guide.

Important points to note include:

•  The reference project does not need to assume everything will be done within the public sector. The public sector delivery method will often include elements of outsourcing or third-party contracts. For example, in the case of a hospital facilities project, the agency might decide that the reference project would consist of a turnkey contract with a builder to design and construct the building, followed by a contract with a facilities management company to provide cleaning, maintenance and other aspects of the required outputs.

•  The reference project should be based on the same scope as the PPP component of a project only. This is particularly relevant for social infrastructure projects where core service delivery responsibility remains with government. For example, a hospital PPP contract would not include the core health services which will be provided by the public sector. Therefore, the reference project should only include the services to be provided by the private party as part of the PPP contract. Note that this does not mean the core service delivery costs should be ignored. Part of the value for money assessment includes evaluating the impact of bid solutions on any core service delivery costs.

•  Defining the reference project and constructing the PSC should be based on a project specific financial model rather than simply undertaking a desktop analysis. An important allied point is the need to engage suitable technical advisers to develop the technical solution embodied in the Reference Project. For some projects a number of technical advisers (e.g. architect and building services) may be required. These technical advisers are also required to assist in developing the output specifications for the RFP and contract, and in assessing bids. They need to understand not only the relevant industry sector (e.g. water, health) but also the nature of PPP projects and the need for output specifications rather than input specifications. Given the relatively small pool of expertise available, these advisers should be engaged early in the process.

•  The reference project should be a realistic estimate of what efficient public provision would involve. The reference project should be documented thoroughly. The agency must complete a detailed, documented description on how it would deliver the project if it were to be delivered publicly.This should include: which elements it would contract out; the type of contracts it would use; elements of the project which would be done in-house; and how these elements would be delivered.