Risks are an important component of a PCC as they reflect the possibility of costs above the direct and indirect costs involved in the project. In a PPP, risks play a major role. The transfer of risks from the public to the private sector is inherent in the benefits gained from the private funding and partnership of public goods and services.32 In evaluating risks, it is important to first identify all material risks, then quantify the consequences of the risk and estimate the probability of the risk. Only by calculating the consequences and probability is it possible to calculate the value of all the risks in the project. The PCC requires the evaluation of all the risks retained, transferred, and shared. The financial evaluation of the PCC will then include the transferable risks and retained risks that should have already been estimated. The transferable risks will increase the value of the private bid, and the retained risks will be added to the costs of the private bids.33 In many cases, correct calculation of the risk in projects accounts for cost savings. In a study by Ball (2003), sixty percent of the total savings was due to risk transfers.34 Alternatively, the UK analysis of the case study Anderson and LSE Enterprise found that thirty-five percent of the cases only achieved value for money because of risk transfer.35
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32 Hodge, G. A. (2004). The risky business of public-private partnerships. Australian Journal of Public Administration 63(4):37-49, pg. 39.
33 Buxbaum, J. & Ortiz, I. (2009). Public Sector Decision Making for Public-Private Partnerships: A Synthesis of Highway Practice. Washington, D.C.
34 Ball, R., Heafey M. & King, D. (2003). Risk transfer and value for money in PFI projects. Public Management Review 5(2). Retrieved from http://www.informaworld.com/smpp/content~content=a714042651~db=all.
35 Hodge (2004), 39.