Separately, there may be components of the cost of providing services for which it is value for money for the State to bear or share price or volume risk over time.
The State may propose to bear or share price risks where prices are determined by third party suppliers to Project Co and where either:
• price changes demonstrate high levels of uncertainty and volatility; or
• price changes cannot be controlled by Project Co's technical solution or approach to service delivery. For example, the risk of price change for Insurances and the risk of price change for Utilities supply.
Similarly, the State may propose to bear or share volume risks where Project Co has negligible or limited ability to control the quantum or type of usage. For example, the State has typically retained volume risk in relation to Utilities where a party other than Project Co, operates the Project Assets. The State retains volume risk by adjusting the pass-through cost component of the Service Payment. By contrast, the State may transfer volume risk for fully outsourced Availability PPP Projects where Project Co is the operator (refer to section 2.13.7 for more details on Utilities risk sharing).
The Project Deed will describe the extent to which a risk is shared by the State, including review points or thresholds at which these risks could be efficiently transferred to a larger extent to the private party. Consequently, the Payment Schedule may include a component for 'pass-through' costs and Project Co will be reimbursed by the State as these specified costs are incurred.
Pass-through costs are separately identified in the payment mechanism to clearly isolate them from other margins or risk pricing. The State's intention is to limit pass-through arrangements to circumstances where it provides value for money and where costs can be clearly identified, recorded, and measured.