Value for Money Analysis Principles

Value for Money Analysis Principles

The Build America Center (BAC) is working to make it a bit easier for agencies to fulfill the Value for Money (VfM) analysis requirement when applying for Federal funding and financing programs included in the Infrastructure Investment and Jobs Act (IIJA).

Sections 11508 and 70701 of the IIJA require a VfM analysis for specific categories of projects that are carried out using Federal financial assistance. 

VfM is defined as the optimum combination of risk adjusted 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 different delivery methods for the same capital investment project that is achieving substantially the same societal outcome. Therefore, VfM analysis 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 purpose of a VfM analysis is to provide a structured approach for a government to assess the value for money it can expect from a project using the P3/alternative delivery approach. At its core, the VfM analysis is an analysis of the pros and cons of one or more alternative delivery models for a specific project when compared against the default “conventional” delivery model (referred to as the Public Sector Comparator or PSC). The VfM analysis typically involves an analysis of the projected financial (risk-adjusted) cash flows under various delivery models. A government agency may, however, also want to include non-financial and socio-economic considerations in the decision-making process when deciding whether to undertake a project using P3/alternative delivery. It is important to note that the purpose of a VfM analysis is to inform decision-making, rather than replace it.

Most agencies would agree that conducting a robust comparison of delivery models is definitely good practice. However, there is currently no uniformly accepted standard for what a VfM analysis should contain, which makes completing the VfM requirement of the IIJA more difficult.

To assist in making the VfM analysis requirement much easier to fulfill, the BAC is in process of developing a “Generally Accepted Value for Money Analysis Principles” document which will  compile a commonly recognized set of principles on VfM analysis to improve clarity and consistency on the topic.

Team Lead for the development of the VfM analysis principles, Marcel Ham, who is co-founder and president of Rebel’s Washington DC office states that “It is important to have an industry standard for VfM analysis because, currently, there are so many different interpretations and ways of performing the assessment. It will be extremely helpful to have a set of principles that agencies can follow.”

As part of an initial industry outreach effort, in June 2022, the BAC sent out a survey to stakeholders involved in conducting or reviewing VfM analyses to solicit their input in order to identify the key principles that should be included in the guide. Based on the feedback received, the BAC developed a first draft of the VfM Analysis Principles. This initial draft is currently being reviewed and discussed at several virtual roundtable discussions. Feedback received during those roundables will be used to finalize the “Generally Accepted Value for Money Analysis Principles” which is expected to be released by the end 2022. This initial set of guiding principles is not intended to be ‘forever final’; it is intended to be a “living document” that is updated as industry standards evolve. One outcome of developing this initial set of VfM principles is the identification of areas that require additional research or guidance.