As noted above, one major attribute of PPPs is the opportunity to share risks between the public and private sectors. However, it is imperative that the risks are shared appropriately with associated rewards. There is a need to identify the types of risks, the party best addressed to mitigate the risk and the premium required to compensate for the risk. An inappropriate transfer of risks potentially will result in a significant increase in the premium demanded by the private sector and the probability of provider default, as noted earlier in Exhibit 2.6.
Over the course of a PPP, the various kinds of risks will need to be considered by all parties to the PPP with a clear understanding of the extent to which partnership members are responsible for particular risk factors. Flexibility or risk-sharing in the PPP contract can have a significant impact on the bid prices provided by private sector teams, with both approaches likely to result in a lowering of the bid prices received.