Termination Risk

This risk does not apply to traditional public procurement and is borne both by the Promoter and the Provider. It is the risk that the PPP arrangement will be terminated early, either through the Provider failing financially or failing to perform technically, e.g. by not providing the contracted service adequately. This is a risk for the Provider as it will almost certainly suffer a material financial loss on termination. However, it is also a risk for the Promoter: it will still need to arrange for the service to be provided after the termination, based on the available, constructed project. The risk can be partially mitigated by selecting suitable bidders. However, these are long-term contracts and there is a trend for the original technical members of a consortium to be displaced by purely financial investors which may not have the relevant experience and expertise. Provider failure, on the other hand, may be due to an inappropriate allocation of risk from the outset: see Revenue Risk below.