Government intervention during the operational phase differs from the specification of particular modes of service delivery in the output specifications, upon which the private party bids. In the latter instance, the risks associated with the required mode of service delivery are assumed by the private party as part of its bid price.
Government should take care not to unnecessarily prescribe outputs in its output specifications, except where regulatory or policy requirements dictate otherwise. There are two reasons for this. First, since the private party bears the operating risk of such requirements, it should generally retain sufficient flexibility to enable it to manage that risk. Second, it reduces the risk of government unintentionally assuming operating/design risk it thought it had successfully allocated to the private party. In the limited circumstances where it is necessary for government to prescribe elements of how the services are to be delivered, the risk implications need to be carefully considered (as discussed in section 5.2.1).
If government directly intervenes during the operational phase and subsequently cause operating costs to increase, optimal risk allocation principles would require government to share the increased costs where the contract terms prevent the private party from reconfiguring its process for delivering the services, or its business operation generally, so as to maintain its returns. The costs may be shared by adjusting the service charges accordingly or by increasing the term of the contract in a way that allows the private party to achieve its anticipated returns.
Where the private party fails to comply with specified service obligations because of a government directive or other government intervention, service charges will not be abated.