11.1.2  Explaining the PSC

The PSC represents the estimated total cost to the government of meeting the output specifications under a public procurement delivery method. Therefore, the PSC:

•  includes a full estimated cost analysis of the project at an early stage;

•  is a key management tool during the procurement process because it focuses attention on the output specification, risk allocation and development of a comprehensive estimate for the project;

•  provides a means of demonstrating likely VFM;

•  provides a consistent benchmark and bid evaluation tool; and

•  encourages the private sector to put forward its most efficient bids.

The key attributes of the PSC are:

(i)  it is stated in net present cost (NPC) terms by discounting projected cash flows using the discount rate;

(ii)  it is costed over the life of the project; and

(iii)  it takes account of the risks identified in the forecast cash flows.

The PSC is comprised of four segments:

(i)  Raw PSC;

(ii)  Competitive Neutrality;

(iii)  Transferred Risk; and

(iv)  Retained Risk.