Risks are usually identified by reference to generic risk categories and/or based on different phases of the project. This section of the Guidelines identifies the common risks which can be found in most PFPs. This is intended as a guide only. The identification, allocation and management of risks must ultimately be considered case by case.
Risks clearly identifiable at the time the contract is entered into are allocated in the most favourable way to the party best able to control occurrence and the consequences of their occurrence.
However, some risks are difficult to allocate in advance because they may not be controllable or fully identifiable. These risks should be determined on a case-by-case basis and may be shared or assessed when they occur. What is important is that their existence is recognised and that their occurrence and their consequences are specified, where possible.
One way to contractually address this is through a material adverse effect regime. “Material adverse effect” regimes specify those risk categories which, if they materialise, will have a material adverse effect on the project and are to undergo a special process of assessment and allocation between the parties.
These regimes offer flexibility and comfort to the private party by specifying the outcome (e.g., the restoration of the private party’s position before the event) to be achieved through various measures adopted by the parties when a risk in the specified categories materialises. They also ensure that the Government does not pay a premium for a risk that may never materialise or the consequences of which cannot be predicted with any certainty.