2.27 As well as identifying the preferred option, the work done at OBC stage and subsequent scheme development should result in a comprehensive PPP Risk Allocation Matrix (RAM), an example of which is shown at Appendix 1.
2.28 Before the project is advertised and negotiations commence with the private sector, the procuring entity should have a clear understanding of the risks it intends to transfer to the private sector, and the likely costs of these risks. This will be facilitated through shadow bid modelling of the proxy risk adjusted PPP solution.
2.29 The guiding principle that should be adopted in this process is one of optimal risk transfer. Risks should be allocated to the party who is best able to manage them. If risks are transferred inappropriately to the private sector, value for money will decline since the premium demanded by the private sector will outweigh the benefit to the client. The work undertaken at the OBC stage will provide a basis to determine whether the premium charged by the private sector for assuming particular risks reflects the cost of the risk.
2.30 The allocation of risk will be reflected in the draft contract documentation in the ITPD. It is essential for tenderers to be aware of the risks they are expected to manage so that any premium charged for their transfer is taken into account in bid prices.
2.31 It should also be clear to tenderers what importance is attached to the transfer of given risks in the high level evaluation criteria for assessing bids. All evaluation criteria must be relevant, objective and measurable to enable the scoring of bids within the evaluation model when selecting a preferred bidder. The evaluation of bids and also of variant bids should take account of the risks to be borne by the private sector and the plausibility of tenderers' strategies for managing these risks. Tenderers will clearly need to demonstrate a realistic awareness of the need and capacity to bear risks. Retained public sector risk should also be evaluated.