A feasibility study is used to help determine whether internal resources are available for the particular work or service and, if not, whether the needed expertise and capacity exists in the marketplace. The generic feasibility study analyzes several solutions against a set of pre-existing requirements for contracting out.
Prior to the feasibility study, complete a needs assessment.
The feasibility study helps the purchasing organization determine if a contractor is needed and, if so, how to use that contractor as a resource to fulfill the program goals in a manner that complements in-house resources and priorities.
A decision to contract may be feasible if the following factors are in place:
- The desired outcomes for the project have been defined in the needs assessment;
- The deliverables of the contract are defined and measurable - the ministry can specify what the contractor is expected to do and how to evaluate the contractor's performance;
- Using internal resources to complete the project has been considered but the level of expertise needed is not available and cannot practically be created or acquired;
- The resources and knowledge required already exist outside of government;
- A contract is the best solution for obtaining the works or services within the confines of the situation, which includes costs; and
- Sufficient funds are available to pay for the services.
Establishing the last two factors will depend on the Province's ability to cost the intended project. The budget for a proposed contract should be estimated as fully and carefully as possible, using the market data available for the initial purchase as well as any on-going costs.
If the factors relevant to the required works or services indicate that a contract is needed, the documentation developed can be used as the basis for any associated approval processes.
In cases where a justification is needed that compares contracting to internal resources, estimate the cost of using the ministry’s "own forces" (provided this is feasible) by gathering information on key aspects of the ministry's operation. Such key aspects may include:
- Cost of the applicable staff salaries and benefits;
- Lost opportunities (i.e. the cost associated with internal resources no longer being available for current responsibilities when transferred to this project);
- Materials and supplies;
- Repairs and maintenance;
- Travel; and
- Amortized capital expenditures.
To estimate the cost of contracting the work, remember to focus on what it would cost the contractor to provide the inputs equivalent to the ones specified in the "own forces" analysis (excluding the lost opportunities costs). Also include the contractor's profit margin, if applicable. This cost can be estimated by:
- Reviewing previous similar contracts held by the Ministry;
- Speaking informally with vendors (as outlined in the table found in Vendor Relationships, under the row "Plan");
- Researching trade and professional publications;
- Seeking out other branches, ministries, broader public sector entities and/or other jurisdictions with comparable programs or services; and
- Adding any other costs that would be significant in producing the deliverables.
Once the cost estimates have been developed for both options, compare the “own forces” cost to the contracting estimate.
Next Step: Complete a cost estimate to understand both the resources available and required.