Alternative Procurement Options

The best approach to P3 risk sharing is to allocate each risk to the party best able to deal with it. Optimum risk allocation generally begins with allocating most commercial risks to the private party, most regulatory risks to the public party, and the sharing of additional risks. The early PFI projects in the U.K. attempted to excessively transfer risk to private partners in a way which was either not acceptable to the private partner, or for which the risk premium demanded by the private partner was high, leading to an inefficient project model. More recently, the National Audit Office has provided significant guidance⁴ on the appropriate allocation and pricing of project risk. In Australia, Partnerships Victoria has released a guide⁵ that contains a comprehensive matrix for risk allocation and valuation, which is integral to the value-for-money criteria to be tested under the program.⁶ The Council has also written several publications and made presentations that discuss risk allocation in various sectors.

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4 See www.nao.gov.uk

5 See www.partnerships.vic.gov.au

6 Department of Treasury and Finance, Victoria, Australia, "Partnerships Victoria: Practioners' Guide", June 2001.