The Procuring Authority is likely to retain more risk under a conventional procurement than under a privately financed option such as an NPD. The risks retained by the Procuring Authority under the conventional procurement option should be assessed by reference to the likely cash flows estimated to occur (per example in Table 1). By making informed assumptions about the timing of these risk events, the estimated resulting cash flows can be discounted on the same basis as the other costs (as illustrated in Annex A) and included in the calculation of the total CPAM.
Under an NPD solution significant risk will be passed to the private sector and therefore the cost of mitigation and the risk premium will be incorporated into the shadow bid model costs. It is likely that the shadow bid model cost inputs provided by advisers will be appropriately risk adjusted by including insurance costs, appropriate adjustments to cost inputs and the pricing of debt to reflect the cost of risk transferred to the private sector.
Details of project delivery risk and the project risks retained by the public sector under the preferred route should be formally reported to the Project Board to confirm the acceptability of the exposure to the public sector.