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.
It is important to be clear on the ownership of risk as part of identifying the alliance risks that need to be insured, and making sure there are no gaps between the alliance insurance and the Non-Owner Participant insurance. Any overlap of insurance (sometimes referred to as double insurance) also needs to be minimised because this naturally leads to unnecessary costs.
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.
Being transparent and explicit about risk ownership while allocating risk will help achieve the right balance between the 'collective assumption of risk' principle and the best-for-state principle.