Following the decision to proceed with procurement by alliancing, it is critical to revisit the general project risk analysis and consider the optimal risk allocation and treatment of risk. This step enables the Owner to consider how the risks identified in Step 2 might be allocated between the potential alliance member Participants, with the assistance of the insurance advisor appointed in Step 3.
There are only four parties to whom the risk can be allocated:
• the Owner: risks retained by the government;
• the Non-Owner Participant: risks allocated to or retained by that party (e.g. workers compensation);
• the alliance: risks shared by the members of the alliance (effectively the Owner and the Non-Owner Participants); and
• the insurer: risks transferred to the insurance company.
In determining the allocation of risk it is important to achieve the right balance between:
• the 'collective assumption of risk' principle that exists in project alliancing, on the one hand; and
• the fundamental principle of undertaking project alliancing on the basis of what is best-for-state.
The allocation of risks is relatively straightforward for some risks such as workers compensation, which is likely to be a risk owned by the Non-Owner Participants, and some less certain risks, depending on the nature of the project.
With regard to the treatment of risk, the options are to either insure or to self-manage it. Where self management is chosen, the Owner develops a mitigation strategy. The Risk Advisor should consider a range of strategies including:
• developing the risk management policy and mitigation strategy;
• establishing accountability and authority;
• customising the risk management processes; and
• if necessary, re-designing elements of the project.