The Partnerships Victoria policy is predicated on the idea that the government wishes to contract for the provision of services rather than simply for the procurement of infrastructure. In contracting for the long term provision of these services, the contract process encompasses both the provision of the initial financial support and the provision of infrastructure. Dealing with risks is a major part of this process.
The Department of Treasury and Finance explained that the government's approach to risks provided a central foundation to the Partnerships Victoria policy:315
A cornerstone (of the policy) is the allocation of risk away from government in that government purchases services on behalf of the community rather than risk laden assets.
The idea is that 'government frees itself from asset based risks (including design, construction, operating and residual value risk), and becomes a service recipient. Government does not pay if the service is not delivered and payments are reduced if services do not meet the specified standards'.316 The broad philosophy is to move risks away from government through the Partnerships Victoria mechanism. There is still an overriding requirement to achieve value for money through these contracts. Government may choose to self insure and bear some risks itself, or it may choose to pay a private party to bear risks. On this matter, the department's guidelines note that in practice, 'this means that government may agree to assume some risks which the private party is less well placed to manage (and consequently would charge a higher price to assume)'. These guidelines further explain that:317
… all project risk is initially allocated to the private party. It is then a matter for government to determine, on a value for money basis and having regard to the cooperative framework of the partnership, what risks it should 'take back' to achieve an optimal risk position. The outcome of this analysis is indicated in the document calling for expressions of interest and reflected more comprehensively in the contract released with the project brief.
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315 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Overview, July 2006
316 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Risk Allocation and Contractual Issues, June 2001, p.8
317 ibid.