Risk category | Description | Consequence | Mitigation | Likely preferred allocation |
The risk that the process for delivering the contracted services - or an element of that process (including the inputs used within or as part of that process) - will be affected in a way which prevents the private party from delivering the contracted services according to the agreed specifications and/or within the projected costs. | ||||
Inputs | The risk that required inputs cost more than anticipated, are of inadequate quality or are unavailable in required quantities. | Cost increases and in some cases adverse effect on quality of service output. | private party may manage through long-term supply contracts where quality/quantity can be assured; private party can address to some extent in its facility design. | private party unless government provides inputs. |
Changes in Output specification outside agreed specification range | The risk that government's output requirements are changed after contract signing whether pre or post commissioning. | A change in output requirements prior to commissioning may necessitate a design change with capital cost consequences depending on the significance of the change and its proximity to completion. A change after completion may have a capital cost consequence or a change in recurrent costs only; for example where an increase in output requirements can be accommodated within existing facility capacity. | Government can mitigate this risk to an extent by minimising the chance of its specifications changing and, to the extent they must change, ensuring the design is likely to accommodate it at least expense. This will involve considerable time and effort in specifying the outputs up front and planning likely output requirements over the term. Alternatively, shorter tem operating contracts may be utilised. | Government. |
Operator failure | The risk that a subcontract operator may fail financially or may fail to provide contracted services to specification. | The failure may result in service unavailability, an inability for government to deliver core services and, in each case, a need to make alternate arrangements for service delivery with corresponding cost consequences. | Government will carry out due diligence on principal subcontractors for probity and financial capacity and commission a legal review of the major subcontracts including the guarantees or other assurances taken by the private party; if failure does occur the private party may replace the operator or government may require operator replacement. | private party is fully and primarily liable for all obligations to government irrespective of whether it has passed the risk to a subcontractor. |