VFM Simplified Calculation Model: How Municipal Staff Evaluate PPP/PFI Feasibility at the Internal Review Stage

Against the backdrop of aging public facilities and fiscal constraints, municipalities increasingly face the question of whether to introduce PPP/PFI methods. To determine quantitatively which option lowers fiscal burden — having the municipality implement the project itself versus implementing it as a PFI project — requires calculations based on prior case data.

In May 2026, MLIT published the VFM Simplified Calculation Model Manual as part of its PPP/PFI guidance series. The model is an Excel-based calculation tool that municipal staff can use to estimate VFM in-house before commissioning external consultants.

This article structurally explains the contents of that manual.

Value For Money (VFM) refers to "supplying services of high value relative to payment." In PFI projects, VFM is calculated as the difference between:

• PSC (Public Sector Comparator): the present value of public fiscal burden through the project period when the local public entity implements the project itself
• PFI-LCC (PFI Life Cycle Cost): the present value of public fiscal burden through the project period when the project is implemented as a PFI project

If the PFI-LCC falls below the PSC, the PFI side has VFM. Evaluating the presence or absence of VFM is the basic judgment for whether to implement a public facility project as a PFI project.

The MLIT manual divides the use of VFM calculation into five stages.

Confidence increases at each stage. The target of this manual is the internal review stage, that is, when staff themselves estimate VFM before commissioning external consultants.

The manual also anticipates use in the "(4) Simplified Quantitative Evaluation" step within the Cabinet Office's "Guidelines for Preferential Consideration of Various PPP/PFI Methods" (December 2015).

The VFM Simplified Calculation Model produces four outputs.

1. Future revenue and expenditure projection when the local public entity implements the project itself (PSC basis)
2. Future revenue and expenditure projection when implemented as a PFI project (PFI-LCC basis)
3. VFM for the project (difference between PSC and PFI-LCC)
4. Sensitivity analysis by project cost reduction rate

These provide a simple quantitative basis for in-house judgment on whether to introduce PPP/PFI.

The model targets VFM evaluation of PFI projects under the PFI Act in principle. The scope is defined by combinations of project method and project type.

• BTO (Build-Transfer-Operate): the private side builds the facility, transfers ownership to the local public entity immediately upon completion, and the private side performs maintenance and operation
• BOT (Build-Operate-Transfer): the SPC (Special Purpose Company) builds, maintains, and operates the facility, and transfers ownership to the local public entity at the end of the PFI contract
• BOO (Build-Own-Operate): the SPC builds, owns, and operates the facility, and dismantles or removes it at the end of the contract (almost no precedent)
• RO (Rehabilitate-Operate): the SPC rehabilitates an existing facility and then performs maintenance and operation until the end of the PFI contract. For VFM calculation, treated as equivalent to BTO

By using part of the model's functionality, simplified evaluation of revenue and expenditure for long-term inclusive consignment such as the designated manager system is also possible (see Chapter II §6 of the manual).

Step 1: Project Entity, Method, and Period

The upper limit of the project period equals the upper limit of the debt-incurring act. For the national government this is 30 years; for local public entities there is no statutory upper limit.

Step 2: Costs, Revenues, and Financing Conditions

Eight items are entered in order.

1. Costs under the conventional method (PSC side)
2. Costs under the PFI method
3. Revenues under the conventional method
4. Revenues under the PFI method
5. Financing conditions
6. Reference values for the private operator's revenue and expenditure
7. Present value discount rate
8. Taxes

Most items come with initial values set based on past PFI project examples, so calculation is possible with minimum input.

Step 3: Period Allocation Ratios

1. Period allocation ratio of facility development costs
2. Year and amount of major repairs

Step 4: Execute Calculation

Run the calculation under the input conditions and check the four outputs (PSC projection / PFI projection / VFM / sensitivity analysis).

Step 5: Sensitivity Analysis

Vary the project cost reduction rate to analyze the sensitivity of VFM.

1. Expanded input items: input items have been detailed so that more refined VFM calculation is possible according to the user's stage of consideration
2. Updated initial values and reference values: initial values reset based on past PFI project performance, allowing PPP/PFI introduction judgments with minimum input
3. Expanded target projects: the previous version targeted only PFI Act-based PFI projects; the new version also calculates revenue and expenditure for long-term inclusive consignment such as the designated manager system, enabling cost comparison with the conventional method

If VFM is positive (PFI side below PSC), there is economic basis for selecting a PPP/PFI method. However, simplified calculation at the internal review stage has lower confidence, and the next stage (PPP/PFI feasibility study) for refinement is anticipated.

If VFM is negative (PFI side above PSC) or marginal, the introduction of PPP/PFI is shelved, or alternative project methods (mixed type / independent profit type / long-term inclusive consignment) are considered.

If the sign of VFM frequently switches in sensitivity analysis as the project cost reduction rate varies, the result depends on the confidence of the initial values. Early involvement of an external advisor for refinement is needed.

The MLIT manual makes the following limits clear.

• For broad usability, the timing of expense occurrence, accounting treatment, and tax treatment are simplified and generalized. Specific conditions may not be reflected
• For refined VFM evaluation with detailed conditions, the design document and source code are available upon request to the MLIT Policy Bureau Public-Private Partnership Policy Division
• Secondary use beyond the intended purpose, including commercial use, is not permitted

Within comprehensive management plans for public facilities or individual facility plans, the following flow is anticipated when considering PPP/PFI introduction for a specific facility.

1. Organize the candidate facility's outline (development period / maintenance and operation period / assumed costs)
2. Enter into the VFM Simplified Calculation Model (Steps 1-3)
3. Execute calculation (Step 4)
4. Sensitivity analysis (Step 5)
5. Summarize results in an internal report and judge whether to commission a PPP/PFI feasibility study
6. If commissioning a feasibility study, include the calculation results in the specification document

Before submitting proposals to municipalities, private operators benefit from understanding the assumptions municipalities use to view VFM, which strengthens their proposal narratives.

MLIT's VFM Simplified Calculation Model is an Excel tool for municipal staff to enter and calculate at the internal review stage. VFM = PSC − PFI-LCC; if the PFI side falls below PSC, there is VFM. Applicable project methods are BTO + BOT (long-term inclusive consignment also partially supported). Among the five stages, the refinement level is "simplified calculation" — in-house judgment material before external consultant commissioning.

The new model is updated from the 2008 version with three changes (expanded input items / updated initial values / expanded target projects). Used with understanding of its limits (specific conditions not reflected / no commercial use), it serves as the entry point to the next stage (feasibility study).

• Primary Source Library: MLIT PPP/PFI Guidance Series (May 2026 publication)
• Related guidance: The VFM Simplified Calculation Model (PDF + Excel) is document 06 in the same archive
• Related articles: What Is Small Concession / Choosing PPP Methods by Fiscal Capacity