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P3-VALUE: Public Sector Comparator Tool User Manual

December 27, 2013

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Chapter 4. Assumption and Examples

As shown below, developing the PSC estimate is the second step in conducting a VfM analysis (the first step is to develop a risk assessment). The following section details what inputs users should enter in the "Assumptions" sheet of the PSC Tool.

To develop a PSC, an agency should first compile the necessary data to utilize as assumptions in populating the model. As described earlier, agencies typically derive these assumptions from estimates, analyses, and decisions earlier in the project development process, such as:

  • Project schedule;
  • Cost estimates for design, construction, operations, and maintenance;
  • Cost estimates for other project costs such as land/ROW;
  • Tolling analysis and Traffic and revenue analysis;
  • Public policy decisions regarding the project objectives and tolling;
  • Funding analysis (estimates of grants or subsidies available for the project);
  • Financial analysis and a detailed financial plan;
  • Inflation analysis; and
  • Outcomes of the risk assessment.
Traffic Scenarios

The pre-populated Example Scenario within the PSC Tool demonstrates the range of assumptions when preparing a PSC. Users can select a variety of tolling examples to include in the scenario. The "Variable Tolling Example," the "Simple Tolling Example," or the "Toll Scenario Template" can be selected from the "Traffic Scenarios" drop-down menu. If the "Toll Scenario Template" is selected, users can navigate to the "Toll Scenario Template" sheet and enter data in this sheet. The template accommodates variations in toll rates and vehicle classifications similar to the "Variable Tolling Example" and the "Simple Tolling Example" scenarios.

The traffic scenarios provided in the PSC Tool are for demonstration purposes only. If an agency conducts a VfM analysis for a specific project, the actual components and assumptions used in constructing the PSC, such as the project cost estimate and traffic and revenue assumptions, must reflect the specific project being analyzed.

Project Delivery Structure

Users can alter the delivery structure of the Example Scenario through the "Project Delivery Structure" check boxes. The project delivery structure options in the PSC Tool are:

  • Design Build: The design aspect refers to completing plans for the project, which includes producing engineering drawings and selecting construction materials and the construction site. Build refers to constructing the facility, which includes reviewing conditions at the building site, providing construction staff and materials, selecting equipment, and, when necessary, amending the design to address problems discovered during the construction phase. Design Build is generally carried out by the private sector in P3 delivery structures.
  • Finance: Financing includes providing capital for the project, which may include issuing debt such as project revenue bonds. Users may select "finance" to account for project-based financing (i.e., not financing based on the public sector's full faith and credit).
  • Operations: Operations includes facilitating the performance and availability of the highway, which includes removing debris and snow. It may also include the cost of collecting traffic data. Users may select "operations" if the private sector would undertake operations as part of the project delivery structure (such as in a DBFOM).
  • Maintenance: Maintenance includes keeping the project in a state of good repair, which includes filling potholes, repaving or rebuilding roadways, and ensuring the integrity of bridges and highways. Users may select "maintenance" if the private sector would undertake maintenance as part of the project delivery structure (such as in a DBFOM).
  • Toll Collection: Toll collection includes the installation and operation of toll collection facilities if the project includes tolling to provide a revenue stream for repaying debt.

The project delivery structure assumptions are essential for facilitating a like-for-like comparison between the PSC and P3 option. Users should create a PSC that reflects the same structure that the private sector would use to deliver the project as a P3. Thus, if users wish to compare a design-build PSC to a design-build-finance P3, then they must check the "Design Build" and "Finance" boxes in the delivery structure. Users should note that because the tool uses a simple financial model that does not account for the full complexities of typical project finance debt structures, such as interest earnings on bond proceeds or a subordinate debt tranche, project financing costs may be higher than might be expected for an actual project. In particular, it should be noted that the model is designed for use with toll projects, and financing costs estimated by the model for non-toll projects are somewhat exaggerated. This is because the model assumes that any shortfall in toll revenue relative to the costs to be paid for in a particular year must be borrowed at the beginning of the year - and in the case of a non-toll project, this is essentially all of the costs (including debt service) for that year. Users should refer to the table below in determining the appropriate selections:

Table 1: Selecting Project Delivery Structure

Public Delivery P3
Project Delivery Structure Options
Design-Build Finance Operations Maintenance Toll Collection
DB/DBB DBF X X      
DB/DBB DBFOM (availability payment) X X X X  
DB/DBB DBFOM (real toll) X X X X X

The "Timing" assumptions define when specific costs, revenues, and inflation factors apply to a project. The project delivery structure selected in the PSC Tool determines which timing assumptions are necessary. For example, if the project delivery structure does not include tolling, then users do not have to input values for the "Tolling Period, "Tolling Start," and "Tolling End Dates." Users can input data for the following "Timing" assumptions:

  • Base Date (date - format YYYY)
  • Construction Period (number of years from 1 to 10)
  • Construction Start (date - format YYYY)
  • Operations Period (number of years from 1 to 75)
  • Operations Start (date - format YYYY)

Based on the inputs to these "Timing" assumptions, the following fields will be calculated:

  • Concession Period (no. years) - Sum of the construction period and the operations period
  • Construction End (date) - Adds the construction period to the construction start
  • Operations End (date) - Adds the operations period to the operations start
  • Tolling Period (no. years) - Equals the operations period
  • Tolling Start (date) - Equals the operations start date
  • Tolling End (date) - Adds the tolling period to the tolling start

The "Timing" assumptions are used to support the project delivery structure selected in the PSC Tool. For example, a Design-Build-Finance delivery structure can be shown by selecting the Design Build and Finance check boxes. The "Timing" assumptions and other assumption fields that relate to this structure, such as Concession Period, Construction Start, and Financing, are then visible and can be completed.

Entering Cost Assumptions

Users should input their cost assumptions in base year dollars ( not current or year of expenditure dollars) consistent with the base date defined in the "Timing" assumptions table. All costs are inflated based on the user's assumptions entered in the "Inflation" table.

Other Project Costs

"Other Project Costs" assumptions represent the project costs that the agency incurs in its capacity as the project owner. The types of costs incurred may include right-of-way (ROW) costs, procurement costs, or transaction costs. Based on cost estimates, users input the total dollar value for the identified project costs, and select the timing assumptions that apply to each cost.

Users can input the "Total Cost" for each of the "Other Project Cost" assumptions. Additionally, users can select the "Start Date" and "End Date" from corresponding drop-down menus that contain the following selections: Base Date, Construction Start, Construction End, Operations Start, and Operations End. The "Start Date (Year)" and "End Date (Year)" fields are automatically calculated based on the selection.

Construction Costs

The "Construction Costs" reflect the costs associated with the project's design and construction phase. Specific costs may include the cost of the design-build contract or the sum of the separate costs of the design contract and construction contract (under a design-bid-build structure, with the bid costs reflected under "Other Project Costs"). These costs are provided in the "Asset Type" column. Based on estimated costs, users may input the total dollar value of each cost in the "Cost ($)" field and then determine the allocation of each cost across the design and construction phase as percentages of the total cost. The cost profile for each "Asset Type" spreads the cost of the asset over the construction period.

Operating & Maintenance (O&M) Costs

Because agencies consider the life cycle costs of a project in the PSC, it is important to include "Operating Costs" and "Maintenance Costs" in the "Assumptions" sheet unless the P3 option being considered is Design-Build-Finance (i.e., it does not include operations and maintenance). Typically, maintenance costs include:

  • Routine maintenance that is planned and performed on a routine basis to maintain and preserve the condition of the highway system; and
  • Periodic or preventive maintenance that includes resealing, re-gravelling, or new line markings at regular intervals during operations.

In the PSC Tool, the operations and routine maintenance costs are provided as annual values and can be entered as either a percentage of construction (Column E), or as a dollar value (Column F).

The assumptions required for "Periodic Maintenance Costs" are the same; however, users can enter a number in the "Years Per Period" field to indicate how often the periodic maintenance is completed. For example, if the value of the "Years Per Period" field is "8", then the "Periodic Maintenance Costs" will occur every eight years during the operations phase. Note that if users choose to input O&M costs as dollar values, the adjacent cells in column E black out so that the inputs are only either dollar values or percentages. The PSC Tool will prompt users to first "zero out" the percentage if switching to dollar values, or vice versa.

Toll & Other Revenue

If a project delivery structure includes toll collection, then a project's traffic and revenue study would provide a basis for the "Toll & Other Revenue" assumptions in a PSC. Other revenues from non-road pricing strategies, such as utility right-of-way lease payments, may generate value relevant for the PSC. The PSC Tool accounts for tolling assumptions such as:

  • A "Simple Toll Example" and "Variable Toll Example" that can be loaded into the PSC Tool using the "Traffic Scenario" drop-down menu. A blank "Toll Scenario Template" is also provided for users interested in entering their own tolling assumptions. The "Toll Scenario Template" requires the same level of detail regarding toll rates and volumes as the other tolling examples. To ensure that any revisions to the traffic scenario are incorporated into calculations of the outputs, users should click the "Update" button on the traffic scenario worksheet they are working on once they have made revisions to the assumptions.
  • The "Toll Revenue Leakage" assumption reflects a set percentage of revenue that is not collected each year (i.e., due to unpaid toll violations). "Toll Revenue Leakage" is expressed as a percentage deducted from annual gross revenues and is entered as a negative value in the PSC Tool.
  • The "Toll Revenue Ramp Up" period reflects the period after the road opens where initial traffic volumes increase to a steady state. The ramp-up period may be up to six years long in the PSC Tool. Users can enter a negative percentage value per year to be subtracted from the period's gross toll revenue. It is important to review the traffic assumptions to be used in the PSC Tool to assess if the ramp-up period has already been factored into the traffic volumes. If so, leaving the ramp-up period assumptions out will avoid double-counting the impact of the ramp-up period. Similarly, if toll revenue values are inputs to the PSC Tool, it is important to consider whether toll leakage has already been accounted for in these values prior to including this assumption in the PSC.
  • "Annual Non-Road Pricing Revenue" covers a wide landscape of strategies that may be employed to generate value from the project and may be relevant in constructing the PSC. Depending on the project, non-road pricing strategies may involve the sharing of costs, revenues or financial risk between public and private partners, or may impose fees or taxes on defined groups expected to benefit from the project. [1] ( Note: all references are located at the end of this manual). For example, value capture strategies can be applied to roads to take advantage of the increased property values and other economic benefits produced by such improvements as in the case of the San Joaquin Toll Road in California and E-470 in Colorado. Non-road pricing strategies can be accounted for as project revenues under a PSC.

The "Funding" assumptions reflect the amount of any grant or subsidy that the agency may receive for a project, or that it may finance from non-project revenue streams such as taxes. The assumption can be provided as an amount of total funding or it can be set as a percentage of the construction costs.


If "Finance" has been checked as part of the project delivery structure, it indicates that project-based financing is included in the PSC. (Any financing based on the public sector's full faith and credit would be included in the "Funding" line item above)

If a project involves financing, users can specify the level of project-based finance taking into consideration what can be supported by project revenues and what is needed based on the funding gap. Users can input a percentage in the "% Of Project Financed" field, indicating the amount of the funding gap or net costs after funding amounts included in the "Funding" line item above. If financing based on project revenues is proposed to be used to address the entire gap, then users can enter "100%" as the assumption for this field. If some of the gap in funding will be provided by some other project source and not financed, users may input an amount less than 100%-but this will not normally be the case for a new highway project, so the user should input 100%. Users can then input the following assumptions that typically come from a project's finance plan:

  • Facility Start Date - The construction start date in the PSC Tool (the debt is issued at the start of construction).
  • Maturity (years) - Indicates the debt period.
  • Issuance Fee - The issuance fee and interest rate determine the financing costs in the PSC Tool. The issuance fee is a one-time fee incurred when the debt is initially drawn and is applied to the total borrowed amount.
  • Interest Rate -The interest rate is applied per period to the current loan balance.
  • Annual Debt Service Cover Ratio (DSCR) - The minimum required DSCR (see Primers) for each cash flow period. The DSCR is calculated after construction completion to ensure that it meets the minimum required DSCR.
  • Payment Schedule - Either semi-annual or annual debt payments can be selected from a drop-down menu in the PSC Tool.
  • Debt Facility - The P3-VALUE tools provide for bond- and draw-type (i.e., bank loan) facilities. The bond facility is based on the borrower raising debt in the year construction commences, with interest payments throughout the construction phase followed by principal and interest payments during operations until the debt matures. The draw facility is based on the borrower drawing down the debt throughout the construction phase with principal and interest payments occurring during operations until maturity (i.e., the interest during the construction phase is assumed to be "capitalized.").
  • Grace Period (years) - Applies to the debt principal payments that commence after construction completion. Debt interest payments will continue to be made during the grace period.

The PSC Tool includes a debt reserve as part of its notional financing structure. The debt service requirement for each period is based on the debt payments calculated for the two future cash flow periods and the DSCR assumption. For example, if the minimum required DSCR assumption is 1.5, the requirement equals 1.5 times the sum of the debt payments in two future cash flow periods. The PSC Tool calculates whether the cash flow available for debt service is sufficient to meet this requirement. If it is insufficient, additional funds are borrowed in the debt reserve account notionally presented on the "Financing" sheet of the PSC Tool to increase the funds available for debt service. Any borrowed funds are held in the reserve until they are no longer required to meet the DSCR requirement.

Users should note that because the tool uses a simple financial model that does not account for the full complexities of typical project finance debt structures, such as interest earnings on bond proceeds or a subordinate debt tranche, project financing costs may be higher than might be expected for an actual project. This is particularly true for non-toll projects, because the tool has been designed for use with toll projects in which a revenue stream from the project is available to support costs over the life of the project.


There are four Inflation Factors that may be provided as Assumptions in the PSC Tool. Users may input inflation assumptions as percentages for the following indices:

  • Consumer Price Index (CPI) - Applies to all costs during the operations period as well as any non-road pricing revenue.
  • An index for construction phase costs - Applies to construction costs if the field has a value greater than zero.
  • An index for operations phase costs - Applies to operations period costs if the field is greater than zero. (If the value is zero, the CPI will be used).
  • An index for toll rates (if the project delivery structure includes toll collection) - Applies to toll revenue.
Risk Allocation & Risk Values

Conducting a risk assessment is a prerequisite for developing a PSC. For general guidance on the risk assessment process, see FHWA's Primer on Risk Assessment for Public-Private Partnerships and for step-by-step instructions for conducting a risk assessment, see the Risk Assessment Tool User Manual in conjunction with FHWA's Risk Assessment Tool.

The "Risk Allocation" and "Risk Values" inputs are outcomes of the risk assessment process and may include:

  • An allocation of project cost and schedule risks between the public and private sectors.
  • The cost and schedule delays for the project's construction and operations phases in real dollars, including the 10th percentile, 70th percentile, and 90th percentile values for cost and schedule delays.

Table 2 below specifies the Risk Assessment Tool outputs that users should carry over into the PSC Tool after completing the risk register from the public sector perspective.

Discount Rate

Users may manually enter the discount rate in the PSC Tool as a percentage value in the "Rate" field. The discount rate is the factor applied to the cash flows to generate the project's Net Present Value (NPV) or Net Present Cost (NPC). With a discounted cash flow analysis, all cash flows are discounted to their present value using the discount rate established by the public agency. The discount rate is the rate at which the cash flows occurring at different times in the future are brought to a base period. Discounting allows project cash flows that have different timing assumptions to be discounted back to a base date, enabling a like-for-like comparison of the cost of each delivery structure. [2]

A discounted cash flow analysis may utilize either a real or a nominal discount rate. The selection of a nominal or real discount rate should be consistent with the use of nominal or real project cash flows. The pre-populated "Example Scenario" in the PSC Tool includes inflation assumptions that are applied to the project cash flows. The Example Scenario's nominal discount rate accounts for the effect of inflation and is therefore consistent with the cash flows being discounted. If users wish to apply a real discount rate, then they should assume no inflation factors.

Selecting the Discount Rate

Selection of the discount rate is a critical decision in conducting a VfM analysis because the discount rate affects all cash flows and has a significant influence on the relative NPV. The same discount rate may be used to calculate the NPV in the PSC and P3 Estimate to provide consistency across the present value calculations. A higher rate will typically favor the P3 Estimate over the PSC and a lower rate will favor the PSC over the P3 Estimate. [3] This may occur if a larger portion of PSC payments are made in earlier years relative to the P3 Estimate. If payment profiles are similar between the PSC and the P3 option, the discount rate should not affect the relative comparison (i.e., the per cent difference), although the actual values of the PSC and P3 Estimate will change.

There is no universal approach for selecting the discount rates for VfM analyses, though users are encouraged to refer to the "Discount Rate" section of Chapter 4 of the Shadow Bid Tool User Manual. Users may also refer to Chapter 3 of the Primer and the Guidebook for Value for Money Analysis for Public-Private Partnerships (under development) for additional information on selecting an appropriate discount rate.

PSC Adjustments

To facilitate a like-for-like comparison between public and P3 delivery options, users may input "PSC Adjustments" (as dollar amounts incurred during construction or operations) to remove any differences between the delivery options. Such adjustments are discussed below.

  • Competitive Neutrality removes any net competitive advantages that would be inherently available to the procuring agency and includes equivalent costs that would otherwise be incurred. Competitive advantages of public delivery may include property taxes, for example, that are only levied on private enterprises. Competitive disadvantages may include heightened public scrutiny and reporting requirements not faced by private entities. [4] Taxes such as sales tax are generally reflected in the project cost assumptions in the PSC and the P3 Estimate. However if a public agency considers it appropriate, a PSC adjustment may be included in the PSC to account for any benefit attributable to the tax-exempt status of the agency. The P3 Estimate may also be prepared with no or reduced corporate taxation obligations for the private entity if the agency considers its tax-exempt status to be a distinguishing factor between the PSC and the P3 Estimate.
  • Deferral costs reflect the costs to the agency of not proceeding with the public sector option on the same schedule as would be possible under the P3 option and should reflect the additional costs arising from elements such as congestion, accidents, vehicle operating costs, ROW, opportunity costs, and agency maintenance costs, if applicable. [5] Note that the deferred investment costs will also need to be discounted and subtracted to get the net deferral costs.
  • Vulnerability costs reflect the risk-adjusted cost of a loss of service or catastrophic failure of a vital facility, which may be applicable in the case of certain aging assets that are structurally deficient or prone to flooding, for example. [6]
  • Optimism Bias accounts for the tendency of project appraisers to be optimistic and less objective regarding certain risks, rendering estimates and projections inaccurate. Adjustment factors may be developed using data from pre- and post-contract signature documents to account for overstated benefits, understated project schedules, and understated capital/operating costs.
  • Toll revenue risk: A key issue is how to account for the financial impacts toll revenue risk (a.k.a. demand risk). Toll revenue risk is accounted for in the financing costs of toll concessions through the higher rates of return demanded by investors. However, toll revenue risk is the same for all types of procurement, conventional or P3, regardless of the way concessionaires may be compensated. When the procuring agency retains toll revenue risk through conventional procurement or an availability payment concession, the cost of toll revenue risk does not disappear. While the financial impact may not appear on the procuring agency's balance sheet, taxpayers in effect bear the risk, but cannot demand compensation for those "risk-bearing services." Therefore, it may be appropriate to account for the cost of the toll revenue risk retained, through a competitive neutrality adjustment.

Table 2: Integrating Risk Assessment Outputs with the PSC Tool

Risk Assessment Tool Public Sector Comparator Tool
Worksheet Field Cell Worksheet Field Cell
Table 5 - Cost Impact Outputs Public % of Cost Risk (DB) G16 Assumption DB Phase % Public Cost Allocation E80
Table 5 - Cost Impact Outputs Private % of Cost Risk (DB) H16 Assumption DB Phase % Private Cost Allocation E81
Table 5 - Cost Impact Outputs Public % of Cost Risk (Oper.) G17 Assumption Oper. Phase % Public Cost Allocation E82
Table 5 - Cost Impact Outputs Private % of Cost Risk (Oper.) H17 Assumption Oper. Phase % Private Cost Allocation E83
Table 5 - Cost Impact Outputs P10 DB Subtotal F26 Assumption P10 DB Cost Impact E86
Table 5 - Cost Impact Outputs P70 DB Subtotal G26 Assumption P70 DB Cost Impact F86
Table 5 - Cost Impact Outputs P90 DB Subtotal H26 Assumption P90 DB Cost Impact G86
Table 5 - Cost Impact Outputs P10 Oper. Subtotal F27 Assumption P10 Oper. Cost Impact E87
Table 5 - Cost Impact Outputs P70 Oper. Subtotal G27 Assumption P70 Oper. Cost Impact F87
Table 5 - Cost Impact Outputs P90 Oper. Subtotal H27 Assumption P90 Oper. Cost Impact G87
Table 7 - Schedule Impact Output Public % of Schedule Risk (DB) G18 Assumption DB Phase % Public Schedule Allocation F80
Table 7 - Schedule Impact Output Private % of Schedule Risk (DB) H18 Assumption DB Phase % Private Schedule Allocation F81
Table 7 - Schedule Impact Output Public % of Schedule Risk (Oper.) G19 Assumption Oper. Phase % Public Schedule Allocation F82
Table 7 - Schedule Impact Output Private % of Schedule Risk (Oper.) H19 Assumption Oper. Phase % Private Schedule Allocation F83
Table 7 - Schedule Impact Output P10 DB Subtotal F38 Assumption P10 DB Schedule Impact E88
Table 7 - Schedule Impact Output P70 DB Subtotal G38 Assumption P70 DB Schedule Impact F88
Table 7 - Schedule Impact Output P90 DB Subtotal H38 Assumption P90 DB Schedule Impact G88
Table 7 - Schedule Impact Output P10 Oper. Subtotal F39 Assumption P10 Oper. Schedule Impact E89
Table 7 - Schedule Impact Output P70 Oper. Subtotal G39 Assumption P70 Oper. Schedule Impact F89
Table 7 - Schedule Impact Output P90 Oper. Subtotal H39 Assumption P90 Oper. Schedule Impact G89



[1] FHWA, Innovative Program Delivery,

[2] Partnerships British Columbia, Methodology for Quantitative Procurement Options Analysis Discussion Paper

[3] Treasury Board of Canada Secretariat, Guideline to Implementing Budget 2011 Direction on Public-Private Partnerships

[4] Ibid.

[5] Ibid.

[6] Ibid.


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