Although several procurement options can transfer similar risks, the effectiveness of the risk transfer varies with the amount and nature of the responsibility assumed by a private partner. For example, DB, DBF, DBFM and DBFO, all have a design component; however, the transferred risk of design functionality would be greater for a longer term contract such as a DBFM or DBFO, where the party is responsible for the asset performance over a 20- or 30-year period. In contrast, a DB arrangement may have a warranty period of only three to five years, thereby reducing the opportunity for risk transfer.
In addition, greater risk transfer can be achieved by transferring risk across a broader range of activities. For example, a DBFO partner would assume risk across key areas including design, construction, finance, operations, maintenance and rehabilitation, whereas a DB arrangement would transfer mainly design risk through a more limited range of activities over a shorter term warranty.
Improved value from this type of risk transfer is achieved when the party taking responsibility for a particular activity is better able to manage the associated risks (i.e., the likelihood of the risk occurring is reduced, or the expected cost if the risk does occur is reduced), and when the ability to manage the risk is supported by the added incentive of a long-term, fixed-price, performance-based contract. The contract will include a payment mechanism with clauses to specifically transfer identified risks to a private partner. Establishing a maximum payment, contingent on effective management of these risks by the private partner, also adds value by providing greater planning certainty for the owner.