The allocation of risk and responsibility is a central feature of the service contracts. If risk allocation is left entirely open, the private sector will seek to minimise risks, which will limit the prospect of achieving value for money. The specification needs to give an indication of the risks each party will be expected to manage and should avoid anticipating tenderers' reluctance or otherwise to take on certain risks. What may be a substantial risk for the public sector may be quite acceptable to tenderers.
The presumption should be that a risk should be allocated to the private sector unless it is clear that bidders would be unable to manage it. It may become apparent at a later stage in the process that a particular risk will only be accepted by the private sector at a substantial cost premium, so that alternative arrangements may have to be negotiated. This outcome, however, should not be anticipated in the specification.
In many cases, the final allocation of risks will emerge only following detailed negotiations. Ownership of many of the risks will be implicit in the rest of the specification, but others may have to be set out explicitly. A useful mechanism is to set down the agency's expectations as to risk allocation in a table, as provided in Appendix 4. As with other aspects of the specification, tenderers will need to know which risks are negotiable and which are not.