One of the attractions of public-private partnerships for the public sector is in shifting project risk to the private sector, which then has to understand and account for the possible financial, managerial, and other potential liabilities of the shifted risk. Conversely, public agencies must understand the cost in shifting risk to the private sector.
Risks generally fall into these categories:
• Technical
• Construction
• Operating
• Revenue/financial
• Force majeure
• Regulatory/political
• Project default
The private sector will not willingly assume the risk within a PPP without the possibility of reward. What's interesting is that the risk is not created through a PPP, just reassigned and made visible where before, when borne only by the public sector, it was invisible.
Table 5 (from Constructor Magazine[xxv]) illustrates PPP realignment of risk. Some risks, depending on the partners and project, may be shifted differently than indicated in the table. For example, usage/travel/revenue risk can easily be transferred to the private sector. Also, unknown risks relating to hazmat and archeological may remain with the public sector or be shared. Discriminatory legal action against a PPP is most definitely a risk that remains with the public sector.
Table 5: Risk Re-Allocation in PPPs
| Potential Risk | Typical Private Sector Responsibility | Risk Shifted to Private Sector in PPP |
| Major environmental risks | No | Maybe |
| Usage rates, travel, and revenue | Never | Not likely |
| Conflicts, delays from unknown historical conditions | No | Yes |
| Conflicts, delays from unknown archaeological conditions | No | Yes |
| Conflicts, delays from unknown endangered‐species conditions | No | Yes |
| Conflicts, delays from unknown utility conditions | Maybe | Yes |
| Cost and delays from unidentified hazardous waste not caused by contractor | No | Yes |
| Accuracy of design and survey data | No | Yes |
| Geotechnical and soil conditions | No | Yes |
| Differing site conditions | No | Yes |
| Delays from legal action against the project | No | Yes |
| Delays from public interference | No | Yes |
| Right-of-way acquisition cost, and time to procure (need the public entity's right of eminent domain) | No | Likely |
| Changes in zoning, laws or rules that may affect the project | No | Yes |
| Delays by the grantor and/or other agencies | No | Yes |
| Insurance coverage | Partial | Likely |
| Up-front costs to design and develop project | No | Likely |
| Long-term liability exposure for maintenance, structures | Maybe | Likely |
| Long-term liability exposure to litigation | Maybe | Maybe |
| High and unusual liquidated damages for delay | No | Likely |
| Extraordinary guarantees | No | Likely |
Interestingly enough, though the risks shift to the private sector, the public sector generally retains ultimate authority, responsibility and ownership of the assets. The reward needs to be great enough to entice the public sector to pursue the project. If a private toll road developer does not meet revenue expectations due to lower than projected road usage, the developer may not only lose revenue, but could face possible bankruptcy. Meanwhile, the road still exists as a physical asset of the public sector.