BiFab: intervention analysis
We commissioned Ernst & Young to undertake an evaluation of the BiFab intervention following a recommendation from Audit Scotland that the Scottish Government seek to learn lessons from its experience of recent financial interventions in private companies.
Economic Appraisal: Indicative Value for Money Assessment
Within the Green Book and the SPFM, assessing the VfM of a project is central to the appraisal process. As part of the VfM assessment, it is necessary to understand both the direct and indirect costs and benefits associated with the project, as well as understanding the wider costs and benefits the project may have on society as a whole. Where possible these costs and benefits will be monetised and used to calculate a BCR, which helps form part of the wider VfM assessment. It is not possible to monetise all benefits.
Whilst VfM was considered by SG, the wider economic appraisal was not Green Book compliant. As a result we have not seen a comprehensive breakdown of expected costs and benefits that could be associated with the intervention. Without this detailed breakdown, it is difficult to complete a comprehensive post-evaluation VfM assessment.
To provide some indication of the VfM of the intervention, we have considered the four strategic benefits from the initial ministerial briefings and have considered the extent to which they were achieved and performed high level estimates of the benefits that might have been delivered. The benefit position monetised represents the net benefit achieved and has been calculated in comparison to two counterfactual cases that might have occurred in the absence of the intervention. In the table overleaf we have summarised the four benefits and have also highlighted where quantified benefits could be included in a Green Book compliant BCR and where other quantified benefits instead should form part of the wider VfM assessment.
Benefit position
| Benefit | Metric | Core Benefits | Wider VfM Considerations | ||
|---|---|---|---|---|---|
| Liquidation Case | Managed Administration Case | Liquidation Case | Managed Administration Case | ||
| Employment | Direct GVA | £23.6m | £15.5m | £23.6m | £15.5m |
| Indirect GVA | - | - | £5.6m | £3.5m | |
| Induced GVA | - | - | £5.8m | £3.9m | |
| Strategic Location | There appears to be limited evidence that BiFab was able to take advantage of these strategic locations and reach target markets that the SG had identified in the initial strategic rationale for investment. However, Intervention ensured that the assets and infrastructure were maintained and remained operational beyond the intervention period. It is not possible to quantify the impact of this proposed benefit. | ||||
| Offshore Wind Development | Additional Offshore wind Capacity | - | - | £23.8m - £71.3m | - |
| Future Investment | The intervention in BiFab did not result in the firm becoming a world class fabricator in target markets either domestically or internationally. The intervention therefore did not help deliver additional growth in these markets or help protect domestic supply chains. However, the assets at the sites remained in a useable condition as a result of the intervention, which may be attractive for future investment. It is not possible to quantify the impact of this proposed benefit. | ||||
| Total Benefit | £23.6m | £15.5m | £58.8m - £106.3m | £22.9m | |
| Total Cost | £52.4m | £52.4m | £52.4m | £52.4m | |
| BCR* | 0.46 | 0.30 | |||
| Adjusted BCR** | 1.14 – 2.07 | 0.44 | |||
* The BCR has been calculated using a discount rate of 3.5% in line with HMT’s Green Book Methodology
** The adjusted BCR considers wider VFM considerations.
Contact
Email: SCADPMO@gov.scot
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