A Comparison and Analysis of Methodologies for Conducting Value for Money Appraisals

Abstract: Governments throughout the world are turning to public-private partnerships (PPPs) as a means of providing new infrastructure. The decision to adopt a PPP over conventional government procurement is usually based on a value for money (VfM) appraisal, but this analysis is conducted differently in different countries. This paper describes the correct way to conduct VfM analysis to minimize the present value of the costs to the Treasury or to maximize social welfare. It then compares the documented methodologies of nine specialist PPP units. It identifies four ways in which those methodologies depart from the correct approach, and shows how in each case this departure favors the PPP option. Finally, we show how the approach used in one jurisdiction, the UK, might be augmented to determine the best value for money from society's perspective.