In Partnerships Victoria projects, the state seeks to achieve best value for money by allocating particular risks to the party best able to manage them at the least cost. This process results in risks being either:
• retained by the state
• transferred to the private sector
• shared between the parties.
The project agreement is the mechanism used to establish the obligations of each party in relation to these risks.
We reviewed the risk allocation in the project agreement for consistency with Partnerships Victoria policy and guidelines. The risk allocation was endorsed by DTF, DHS and expert legal advisers. We conclude that the state's interests were protected and that the risk allocation in the project agreement was broadly in line with Partnerships Victoria policies and guidance.
DHS advice shows that there have been 17 departures from Partnerships Victoria risk allocation principles in the RCH project agreement and that a number of the departures were subsequently incorporated into a revised version of the Partnerships Victoria principles.
Our review of the 17 departures indicates that a number of them did not improve the risk allocation in favour of the state. In these instances the outcome seems reasonable given the realities of the positions adopted by bidders for the new RCH project and the commercial dynamics of the negotiations.
We accept that these departures were appropriate and justified, with none representing a fundamental departure from the Partnerships Victoria principles.