Residual risk to government of risks contractually allocated to the private party

The nature of a PPP project results in all project risks that are not assumed by government implicitly falling to the private party (whether expressly allocated in the contract or not).

Government may face significant residual risk where the services delivered by the project impact upon core services of the government party. In these circumstances, if the private party fails to deliver the contracted services, this may interfere with government's ability to provide the core services. Government's preferred position is that this interface risk be allocated to the private party.

Where interface risk is allocated to the private party, government may be entitled to financial compensation under the contract should a failure by the private party to deliver the contracted services interfere with government's ability to provide the core services. However, money alone may be insufficient to compensate government for failing to fulfil its obligations to third parties and deliver key outcomes. Thus, while the financial risk of non‑performance is contractually allocated to the private party, government retains a residual risk should the private party fail to perform or pay compensation.

Government may also retain a significant residual risk if it has a continuing, non‑delegable duty of care to people receiving services provided by the private party.

There can be similar residual risks to government, in the absence of core service interface risk or a non‑delegable duty, where a project risk allocated to the private party materialises and there is a political or public interest imperative for government to deliver the services.