By applying a PPP, many of the risks associated with developing and operating a project can be shared with the private sector. Risk sharing can provide incentives to improve the quality, cost-effectiveness, or timeliness of a project. As one project sponsor observed, under a design-bid-build approach contractors would sit back and leave it to the sponsor to resolve design problems. On the other hand, with design-build, the contractor team members must implement what they themselves design, and will come to the plate much faster to make sure the design works than under design-bid-build.
It is essential, however, to map the risks associated with a project and assign each identified risk to the party most capable of managing the risk. For example, while BART plans to transfer design, construction, start-up, operations and financing risks to the consortium selected to deliver the Oakland Airport Connector project, the agency will retain most of the risk associated with ridership and fare revenue, from which it will pay the consortium a monthly payment for operating and maintaining the connector. By statute BART has the sole authority to control its fare policy, and since fares will not be under the consortium's control, it would be a difficult risk to assign. However, a small portion of the consortium's monthly payment (between 10 and 20 percent) will likely be tied to project fare revenues, to provide incentive for the consortium to design, construct, and operate a facility that is attractive to riders.
Early in the planning process for the Largo Metrorail Extension, WMATA determined which risks were best assumed by the agency as project owner and lumped many of these tasks into a design-bid-build site preparation contract. In the process of negotiating with the design-build teams selected to deliver the project some additional risks were identified and discussed, and contractual requirements such as bonding and minority business enterprise goals were refined to the satisfaction of both WMATA and its contractors.
The Hiawatha Corridor LRT project applied an owner-controlled insurance program (OCIP) to the project, in which the project sponsors maintained five lines of insurance covering general liability, workers compensation, hazardous materials, contaminated groundwater, and other risks. The project sponsors found that this policy helped to minimize the proposed design-build prices from the responsive joint ventures. However, there were some drawbacks to the policy, as contractors had limited incentive to resolve workers' compensation claims.