Highways Agency - Safe roads, Reliable journeys, Informed travellers

Glossary

Conventionally financed/Traditionally procured roads

A road construction contract in which the Agency pay the contractor as the works are progressed. Such projects are fully paid for on completion. Maintenance is dealt with in separate contracts.

Core (technical) requirements

Technical details which must be satisfied by the design and construction and the operation and maintenance to meet the Secretary of State's requirements in the contract

Cost of capital

The interest rate at which an organisation is able to raise funds.

Discount rate

The percentage rate applied to cash flows to enable comparisons to be made between payments made at different times. The rate quantifies the extent to which a sum of money is worth more to the Government today than the same amount in a year's time.

Force majeure

Events over which the parties to the contract have little control, but which could have serious impacts on the contracts. These include war, rebellion, nuclear explosion, earthquakes, pressure waves from aircraft.

Latent/inherent defect

A defect in the existing road which had not been detected before the contract was signed.

Output specification

Specified aspect of the Agency's service requirements or performance specification, for which the Agency set minimum quality standards to be met by bids

Planning risk

The risk that delays or increases in costs could occur due to procedures in the planning process, such as Public Inquiry.

Private Finance Initiative principles

As they apply to Design, Build, Finance and Operate contracts, these are that: the allocation of risk and reward should be clearly defined and private sector returns should be genuinely subject to risk; and the contracts should represent value for money, taking into account the benefits of transferring risk to the private sector and the cost of that transfer.

Protester action

The risk of delay and increased costs due to disruption during the construction phase by anti-road protesters.

Public sector comparator

An estimate of what the project would cost if traditional procurement methods were used. This was used to determine whether private finance offered better value for money than traditional procurement.

Reserve bidder

Second place short-listed bidder after Best and Final Offer stage. Reserve bidders were invited by the Agency to keep their bid on the table in order to maintain competitive pressure on the provisional preferred bidder.

Risk transfer

The passing of risk normally borne by the Agency to the road operator.

Sensitivity test

Test of the impact on value for money of bids of changes in key assumptions underlying the Agency's main value for money assessment.

Shadow toll

Amount paid by the Agency to the road operator for each vehicle kilometre travelled on the operator's roads.

Statutory risk

The risk that the law will be changed in a way which specifically affects the operation of the service - for example the introduction of user paid tolls. The risk of general changes in law is borne by the operators as a normal business risk.

Traffic measurement

Counting the volume and type of traffic using the operator's roads in order to calculate the amount of shadow tolls payable by the Agency for each period.

Whole life approach

Taking a view of the construction, operation and maintenance of the road project over the 30 year period. Under traditional procurement the whole life cost is borne by the Agency; in Design, Build, Finance and Operate contracts this is passed to the operator.