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Benefit-Cost Analysis for Public-Private Partnership Project Delivery - A Framework

January 2016

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2.0 Differences Between VfM and PDBCA

A basic assumption in VfM analysis is that conventional procurement is possible with public financing in the same time frame as the P3. However, this may not be true if the procuring agency is faced with budgetary or debt capacity constraints that limit its ability to tap into future revenue streams to pay for investments today. Thus, benefits to users that may accrue from earlier delivery of the project under a P3 are not considered in quantitative VfM analysis, although they may be considered in a qualitative fashion.

VfM analysis does not quantitatively capture benefits to users from changes in service quality provided to users under a P3. For example, a P3 may provide higher pavement ride quality, improved incident response, or reduced traffic disruption during construction and maintenance activities. PDBCA can account for these benefits to users quantitatively, while VfM analysis either ignores them or relegates them to qualitative assessment.

Finally, VfM analysis requires that the project scope under the P3 be exactly the same as under conventional delivery. Thus, any modifications to scope proposed in a P3 bid would need to be included in the conventional delivery option to make the VfM evaluation valid, and the benefits or disbenefits from P3 scope changes cannot be evaluated.  PDBCA, on the other hand, when applied after receiving the P3 bids, is able to capture benefits or disbenefits from changes in scope proposed in a P3 bid.

The perspective taken with PDBCA is much broader than that taken with quantitative VfM analysis. Societal costs and benefits broader than those that accrue mainly to the public sponsor are quantified and monetized to the extent practicable. Thus PDBCA is a more appropriate framework to use than VfM in answering the question: "From society's perspective, will P3 delivery constitute an improvement compared to the conventional approach?"

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