Comprehensive risk analysis allows the Procuring Authority to consider whether responsibility for the financial consequences of any of the risks should be allocated to the private sector. The objective is to obtain an optimal balance by transferring risk, whenever the benefit to the Procuring Authority is greater than the cost of transfer. It is only following detailed negotiations between parties that the final balance is achieved.
Initially, all relevant and material risks should be identified and assigned to the CPAM, as all of these risks will be held by the public sector client under a conventional procurement. However, the procurement process, whether as a NPD, design & build or a hybrid model, will seek to transfer some of these risks and as such the risk profile for the Procuring Authority will differ under a conventional procurement and a NPD procurement scenario. While a large proportion of risks are retained by the public sector in a conventional procurement model, the purpose of an NPD procurement is to achieve an optimal level of risk transfer to the private sector. Therefore it is useful to distinguish between:
• Risks which are transferrable from the public sector to the supplier (e.g. design risk)
• Risks which are retainable in the public sector (e.g. policy risk)
• Risks which are shared by both parties by contractual agreement.
By distinguishing between these risks for each procurement route option, the Procuring Authority can quantify the amounts to be incorporated into the CPAM and the alternative options in respect of quantified risk.
Risk transfer is likely to be the subject of much negotiation and therefore the preliminary allocation may differ from the final negotiated position. Therefore it is important to revisit the risk assessment and its impact on the quantitative value for money assessment throughout the procurement process.