Risk Allocation

Due to concerns about the viability of this model, the State agreed to cover any losses incurred by the private entity in the first two years; after that the private partner assumed the risks associated with the partnership's profitability. However, the partnership succeeded in generating a profit in its first two years, as well as in each subsequent year. The contractor assumes a great deal of risk since there is no carry over of capital from year to year. No other source of funds is available to pay the contractor should it fail to generate sufficient income to pay its fees - thus creating a strong incentive to keep the project economically self-supporting.