Risk Category

Description

Consequence

Mitigation

Likely preferred allocation

Design, construction and commissioning risk - section 5

The risk that the design, construction or commissioning of the facility or certain elements of each of these processes, are carried out or not carried out in a way which results in adverse cost and/or service delivery consequences. The consequences if the risk materialises may include delays and/or cost increases in the design, construction and commissioning phases, or design or construction flaws which may render the infrastructure inadequate for effective service delivery, either immediately or over time.

Design

The risk that the design of the facility is incapable of delivering the services at anticipated cost.

Long term increase in recurrent costs -possible long-term inadequacy of service.

•  private party may pass risk to builder/architects and other subcontractors while maintaining primary liability; and

•  Government has the right to abate service charge payments where the risk eventuates and results in a lack of service – it may ultimately result in termination where the problem cannot be suitably remedied.

private party will be responsible except where an express government mandated change during the design and construction phase has caused the design defect.

Construction

The risk that events occur during

construction that prevent the facility being delivered on time and on cost.

Delay and cost.

private party generally will enter into a fixed term, fixed price building contract to pass the risk to a builder with the experience and resources to construct so as to satisfy the private party's obligations under the contract

private party will be liable unless the event is one for which relief as to time or cost or both is specifically granted under the contract, such as force majeure or government intervention during the construction phase. Bank may provide a letter of credit, which can be drawn upon by equity parties if construction is not completed.

Commissioning

The risk that either the physical or the operational commissioning tests which are required to be completed for the provision of services to commence, cannot be successfully completed.

For the private party and its financiers -delayed/lost revenue.

For government -delayed service commencement.

No payment by government until all physical and operational commissioning tests have been successfully completed.

private party, although government will assume an obligation to cooperate and facilitate prompt Public Sector attendance on commissioning tests.

Technical obsolescence or innovation

The risk of the contracted service and its method of delivery not keeping pace, from a technological perspective, with competition and/or public requirements.

private party's revenue may fall below projections either via loss of demand (user pays model) payment abatement (availability model) and/or operating costs increasing; for government -consequence will be failure to receive contracted service at appropriate quantity/quality including adverse effect on core service delivery in core service model.

private party may arrange contingency/reserve fund to meet upgrade costs subject to government agreement as to funding the reserve and control of reserve funds upon default; also monitoring obligations in the contract and work on detailed, well-researched output specifications (government) and design solution (private party).

private party except where contingency is anticipated and government agrees to share risk possibly by funding a reserve.