1. Analyzing
Value for Money
for Infrastructure Projects
An analysis used to describe the difference between risk-adjusted total cost for
the public sector using conventional procurement verses public-private
partnership (PPP) procurement methods.
American Water Summit 2012, Chicago
Brian Cullen, President
PERC Water Corporation
bcullen@percwater.com
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2. Value for Money (VFM) analysis refers to the process of developing and comparing total project (life-cycle)
costs, expressed in present value dollars related to traditional project delivery methods (public sector
comparator) compared to alternative project delivery methods that typically use private funding (PPP
Structure).
Step 1: Public Sector Comparator (PSC)
Define “conventional’ public sector procurement that includes understanding the public cost of capital,
resulting in the development of the PSC, assuming the retention by the public sector of all risks for the
project.
Step 2: Determine the Risk-Adjusted Discount Rate
Accurately assess the value created by the PPP structure, especially understanding the allocation of risks
and the associated value of such risk transfer. Examples of risk are construction, finance, schedule,
performance, operations, capital replacements (including funding), regulatory risk. Private capital needs
to reflect the commensurate level of risk assumed by the PPP entity to determine the risk-adjusted
discount rate.
Step 3: Calculate the Net Present Value of PSC and PPP Offerings
Accurately assess the value created by the PPP structure, especially understanding the allocation of risks
and the associated value of such risk transfer. Compare the PSC Costs to the PPP Costs to demonstrate
Value For Money has been achieved.

3. Traditional vs. PPP Structure
A PPP is broadly defined as a risk-sharing relationship between the public
and private sectors to deliver timely public infrastructure and related
services over a long term period.
Source: Deloitte

4. Comparison of
All Costs and Risks for PSC v PPP
Source: PwC

5. It’s all about the “Risk Allocation”
Design-Build-
Design-Bid- Design-Build- Operate-
Build Design-Build Operate Finance
(DBB) (DB) (DBO) (DBOF)
Initial Capital Cost Public Private Private Private
Design/ Build Schedule/Completion Public Private Private Private
Warranties Public Private Private Private
Performance Public Public Private Private
Capital Replacements Public Public Private Private
Asset Mgt
Power & Energy Public Public Private Private
Operation & Maintenance Public Public Private Private
Equity Risk Public Public Public Private
Finance Interest Rate Risk Public Public Public Private
Future Cap Ex Funding Public Public Public Private
Source: PERC Water