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Guidebook for Value for Money Assessment

December 2013
Table of Contents



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1 Introduction

1.1 This guidebook is part of the FHWA P3-Value Toolkit

The Federal Highway Administration's (FHWA) Center for Innovative Finance Support (formerly Innovative Program Delivery) has developed a Public-Private Partnership (P3) Toolkit comprising tools and guidance documents to assist in educating public sector policymakers, legislative and executive staff, and transportation professionals. The P3 Toolkit forms the basis of a broader P3 capacity-building program that includes a curriculum of P3 courses and webinars. The P3 Toolkit addresses both Federal requirements related to P3s and four key phases in P3 implementation: (1) Legislation and Policy Development; (2) Planning and Evaluation; (3) Procurement; and (4) Monitoring and Oversight.

1.2 The purpose of this guidebook is to provide an advanced understanding of Value for Money assessment

In addition to other guidance, the FHWA's P3 toolkit includes the Value for Money Assessment for Public-Private Partnerships: A Primer, the Public Sector Comparator Tool and User Guide, and the Shadow Bid Tool and User Guide. 1 The primer provides an introduction to Value for Money (VfM) assessment. The Public Sector Comparator Tool and Shadow Bid Tool are Microsoft Excel tools that demonstrate how a VfM assessment can be conducted.

This guidebook is intended to be an intricate and detailed follow-on to the Primer and covers more challenging and advanced VfM assessment topics. As such, this document presumes that the reader has read and understood the material in the Primer. It is designed to enhance the overall understanding of VfM assessment and to provide hands on guidance for practitioners in the field.

To make the guidebook as useful as possible to practitioners, this document provides an advanced understanding of the practical applications for assessing and allocating project life cycle risks, and addresses the numerous challenges faced when doing this.

1.3 Value for Money assessment: Which delivery method is the best deal?

The primer on VfM Assessment for Public-Private Partnerships defines VfM as "the optimum combination of life-cycle costs and quality (or fitness for purpose) of a good or service to meet the user's requirement'. The VfM concept is used to compare P3 and conventional delivery methods for the same investment project. Therefore, VfM in this context answers the question, "Which delivery method provides the 'best deal' for implementing a specific project from the perspective of the government?"

The VfM assessment process discussed in this document can be utilized on a case-by-case basis to compare the aggregate benefits and costs of a P3 2 against those of the conventional alternative. It supports government officials when determining if, when entering into a P3 agreement, they are likely to obtain a better deal compared to conventional procurement for the same project.

1.4 What we can learn from previous Value for Money assessments

On the basis of experience with VfM assessments across the world, there are many lessons for practitioners to bear in mind when conducting this type of analysis. Creating and maintaining a robust knowledge base of previous projects is recommended. This knowledge pool insures that both prior lessons learned and useful transferable data are incorporated in contemporary projects, enhancing the effectiveness of VfM assessments and thereby the success rate of P3 projects.

1.4.1 Value for Money assessment is crucial in preparing, procuring, and implementing P3 projects

The VfM assessment is occasionally viewed as an exercise performed only once, in the early stages of a project, to determine which delivery method is "the best deal". However, the VfM assessment can also be used throughout the preparation and procurement of a project. In some jurisdictions, it is common to do a VfM assessment just before awarding a contract. A VfM assessment may be conducted to support the decision on a delivery method in the project preparation phase, but also at the start of consecutive project phases and at contract award. The VfM assessment may be useful in the ongoing monitoring, structuring, and negotiation of P3 deals.

1.4.2 Value for Money assessment should create an understanding of the differences between P3 and conventional delivery methods

While many practitioners have found value in using the VfM assessment process to compare the P3 option to the conventional delivery method, some have found that the VfM analysis can also provide useful information about the potential value-driving mechanisms of the P3 option. This information may be useful in supporting public outreach efforts.

1.4.3 It is better to be roughly right, than exactly wrong

Because of the inherent uncertainly associated with the inputs to the analysis, this guidebook encourages practitioners to 1) use ranges of results instead of an exact number, and 2) be explicit about the uncertainties and impacts that could not be reflected in the outcomes of the VfM assessment. This philosophy provides decision makers with better information to determine and optimize all of the project delivery alternatives.

1.5 The focus of this guidebook is the financial perspective - not the social perspective

This guidebook focuses on the use of VfM to determine value from the financial perspective of a government entity and not the perspective of the entire economy. This distinction primarily affects the valuation section, because the valuation is not based on benefit-cost methods from the perspective of society, but is rather based on financial pricing techniques from the perspective of the public agency or taxpayer.

 As with most VfM assessment methodologies, the starting point is the financial calculation. A government agency may, however, want to include social factors in the decision-making process when deciding whether to undertake a P3 project. This is why the financial VfM calculation may be complemented by relevant non-financial and socio-economic considerations. 3This approach makes the outcome of the VfM analysis clearer and easier to understand for all parties involved. The goal of the VfM analysis is to facilitate decision-making from a broader perspective when choosing whether to undertake a conventional procurement or a P3.

1.6 This guidebook is developed for transportation staff involved in P3 projects

The intended audience for this material includes the staff at the FHWA, individual state departments of transportation, executive branch departments and agencies submitting P3 requests, metropolitan planning organizations, and other transportation management agencies that are considering a P3 approach or are preparing, procuring, and implementing a P3 project. With this guidebook in hand the user will gain the ability to:

  • Better explain the concepts of VfM;
  • Coordinate and monitor a team of specialized advisors; and
  • Perform state-of-the-art VfM assessment.

1.7 The structure of this guidebook mirrors the steps performed in an actual Value for Money assessment

The guidebook is organized to take the user through the different stages of a VfM assessment in the same manner that any practitioner would expect to perform this from start to finish. To improve the understanding of the concepts introduced in this guidebook, a hypothetical example is provided highlighting some of the unexpected challenges that may arise.

A hypothetical example: Introduction to the I-13 Project

The State of Pennorado has decided to expand a highway, Interstate 13 (the Project). The Project is in the early stages in which its feasibility is being assessed, and different delivery methods are being compared in a Value for Money (VfM) assessment. Ms. Brown (the Project manager) and Mr. Regan (the risk manager) work with the Pennorado Department of Transportation (PDOT) on the Project team that is responsible for the planning, contracting, and implementation of this project. Currently the team is performing a risk assessment as part of the VfM assessment. The question is whether the Project should be contracted in the conventional way - design, bid, build (DBB) - or if it should be contracted in a P3 arrangement. The P3 contract may include either a toll concession, or exclude toll revenues and utilize availability payments only.

Project history

The search for a regional transportation solution to the increased traffic congestion and accidents on I-13 started in 2003. In addition to the congestion and accidents, increased freight traffic, and transportation to and from the regional airport need to be addressed. An investment study conducted in 2004 concluded that even with the large planned investments in transit in the region, the expansion of the I-13 corridor was the only alternative that can address the transportation needs outlined above. A Final Environmental Impact Statement (FEIS) was issued in January 2009.

Project description

The Project is located on I-13, an existing four-lane highway connecting two metropolitan areas. The highway corridor is 78-miles long, with major arterials intersecting the roadway. Within the Project area the I-13 corridor consists of a number of communities, including eight cities and five counties. Upon completion, I-13 will be eight lanes wide (four in each direction), four of which will be managed lanes (two in each direction). Carpools, buses, hybrid vehicles with permits, and motorcycles will use the lanes toll-free. The Project also includes bus rapid transit (BRT) service improvements.

Project objectives

The objectives of the proposed I-13 corridor improvements are:

  • Support local and regional comprehensive planning and development;
  • Maintain the efficiency of existing roadways in the immediate vicinity of the airport terminals;
  • Relieve local congestion;
  • Serve airport freight operations, reduce travel times between airport and freight destinations;
  • Improve regional mobility and safety;
  • Design Project in an environmentally responsible manner;
  • Complete the expansion on time to prevent relocation of an airline due to congestion issues; and
  • Provide cost-effective alternatives and solutions.
Project status
  • Design: The preliminary design is 80% complete.
  • Planning and Environmental Approvals: The environmental impact statement (EIS) and record of decision (ROD) were issued in 2009. Tolling was not included in the original I-13 National Environmental Policy Act (NEPA) documentation; additional analysis would be required to reflect the impacts from managed lanes.
  • Right of Way Acquisition: 95 of the 223 parcels needed for the Project have been purchased. The Project assumes the full right-of-way corridor will be purchased through construction may be phased.
  • Toll authorization: Legislative toll authorization would be required and is not available yet.
  • Support: Most cities and all counties, the Port Authority, and the freight community support the Project.
  • Investment cost estimates: Recent estimates for overall design and construction costs are $865 M (1/1/2014).


1 All tools can be found at

2 In a P3, a private entity assumes responsibility for more than one development phase, accepting risks and seeking rewards. This document is concerned primarily with forms of P3s where the private sector partner (called the "concessionaire") enters into a long-term contract to perform most or all the responsibilities conventionally procured separately and coordinated by the government.

3 This guidebook qualitatively discusses these non-financial and socio-economic effects. FHWA is developing further guidance on a Benefit-Cost Analysis-based approach for the quantitative assessment of these effects in the context of a VfM assessment.

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