2.9 The ability to identify, understand, transfer and manage commercial risk is crucial to achieving value for money and the timely delivery of a project. It is also key to protecting the taxpayer from the consequences of failure. Several government projects have failed to manage these commercial risks successfully.10 For example, the PAC report11 on the Channel Tunnel Rail Link project found that the Department for Transport (DfT) failed to recognise that its private sector partner did not have the financial strength or equity capital to sustain a high level of commercial risk if the project encountered difficulties. This left the DfT to provide an increasing level of support to its partner, while still trying to ensure that private sector disciplines were maintained.
2.10 Ten out of 16 commercial directors identified management of commercial risk as a problem in their department, and the OGC has identified risk management as a common weakness in major projects subject to Gateway Reviews. PCRs also highlighted weaknesses in the way that the Ministry of Justice (MoJ), HM Treasury, Cabinet Office and the Department for Environment, Food and Rural Affairs (Defra) manage commercial risk on their own projects although, as previous NAO reports have shown, the scope for improvement in managing commercial risk is not solely restricted to these departments.
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10 The National Offender Management Information System, NAO (HC 292, 2008-9) and The termination of the PFI for the NPL, NAO (HC 1044, 2005-6). Further examples listed at Appendix 2 www.nao.org.uk/commercialskills09_examples.