Academic journal article Asian Social Science

A Public Sector Comparator (PSC) for Value for Money (VFM) Assessment Tools

Academic journal article Asian Social Science

A Public Sector Comparator (PSC) for Value for Money (VFM) Assessment Tools

Article excerpt

Abstract

In a generic sense, when procuring Public Private Partnership (PPP) projects, value for money (VFM) assessment could be determined through a comparative analysis of contractors' proposals against Public Sector Comparator (PSC) documentation. A PSC is a hypothetical framework used as a procurement strategy tool in evaluating VFM and has been a trademark for most countries across the globe such as UK, Australia, Hong Kong and Canada. However, this strategy has not been systematically formulated and applied in Malaysia. The probable reasons for this predicament could be due to the controversy in risk calculation; lacking of non-financial aspects and future cash flow, inappropriate discounted rate used and the difficulty in the PSC calculation. Hence, the aim of this study is to ascertain a complete PSC framework for PPP projects embracing financial and non-financial aspects across project phases (i.e., strategy formulation; procurement; construction and operation phase). The empirical research via questionnaire survey was conducted among PPP stakeholders. The results indicated that the development of PSC framework would facilitate a comprehensive dimension of VFM evaluation for PPP projects in Malaysia.

Keywords: public sector comparator (PSC), public private partnership (PPP), value for money (VFM), financial and non- financial factors

1. Introduction

Today's competitive global environment has led governments around the world to seek new ways to finance and build government's projects. Hence, a Public Private Partnership (PPP) concept is increasingly favoured globally as a tool to exploit the strengths of the private sectors to facilitate as opposed to the conventional system. Theoretically, there are many reasons behind the prompting for a PPP implementation. Literature source on PPP scrutinised the issues of value for money (VFM), risk transfer, innovation, stimulating economic growth and enhancing the quality of public projects as among the attractive factors under PPP regime. Nevertheless, the VFM matter is at the forefront of most government's agenda and is therefore expected as a benefit of this approach.

The gist term of VFM is wide-ranging and captures the issues of whole life cost, benefits, risk and quality to achieve the desired results in accordance with the clients' requirements. In a generic sense, VFM will be determined through a comparative analysis of PPP proposals by private sectors against a public sector alternative by means of Public Sector Comparator (PSC). Public sector Comparator is a hypothetical benchmark that stands for the whole of life cost and risk adjusted of public sector provision as defined in the UK green book and the Australian government. Though the definition differs from each other to some extent, the key elements of PSC include the following aspects: hypothetical and a forecast; net present value number based on life cycle costing; risk adjusted and the possibility that the public sector is to deliver. The purpose of PSC is to assist in decision making by testing whether a private investment proposal offers better VFM in comparison with the most efficient form of public procurement.

Practically many countries namely UK, South Africa, Australia, Hong Kong and Netherland are representative countries applying PSC in evaluating VFM of the Public Private Partnership (PPP) projects. However, this concept literally has not been applied in Malaysia. Even though this had been highlighted in the Ninth Malaysia plan (2006), the establishment of PSC guideline is yet to be established. In the other hands, there are the significant challenges in the development of PSC (Pangera & Wirahadikusumah, 2010) due to controversy concerning manipulation issues, risk calculation and lacking of non financial elements. Besides, the application of PSC in VFM assessment process has been criticized on numerous grounds of issues by the practitioners. Some of the issues rely on: deficient of non financial aspects for instance social and environmental benefit; the accuracy of the risk calculation, assumption and discount rate used in financial calculation. …

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