Emerging best practice

Identification and quantification

Allocation

Plan

Ensure all contracts are subject to a commercial risk assessment, and that there are regular risk reviews across the whole contract portfolio to test and benchmark commercial risk.

Conduct workshops and modelling with suppliers, commercial and business owners to understand risks (for larger contracts).

Carry out analysis to outline options and assess the impact of various risk allocation approaches.

Enure risk allocation matrix is included in the outline business case for all contracts. This should reflect:

•  In considering who is best able to manage risk, government needs to take into account ability to manage and capacity to bear risk.

•  As government has the biggest balance sheet risk allocation should always default to government, except where suppliers are better able to manage risk.

•  Government should accept and manage ultimate risk - the impact of poor performance always returns to government when things go wrong.

Establish a systematic, project management style approach to management.

Set out the distribution of risks in advance, with the contract and contract management plan structured around the risk allocation.

Create appropriate incentives for suppliers to manage risks, that is commensurate with their importance. Incentives need to outweigh the costs that may be incurred.

Ensure levers are in place to effectively manage risk and that these work.