Effective contract management manages material risks over the project lifecycle to achieve project objectives and value for money outcomes. This includes:

• understanding the project objectives and the intent of the project deed;

• understanding the principles behind allocating specific risks;

• identifying risks and assessing their materiality; and

• developing management strategies to assume, control, mitigate or eliminate risks and associated impacts.

Contract management is based on the risk allocation in a project deed. The commercial principles in the National PPP policy guidelines and the Partnerships Victoria standard project deed guidance notes form the foundation of the PPP risk allocation for all Partnerships Victoria projects, which is further developed and refined for each specific Partnerships Victoria project during the procurement phase. The private party bears the risks that the built asset meets the output specification and is suitable for service delivery over the project lifecycle. Usually, this risk allocation is enforced through the fitness for purpose warranty provided by the private party in the project deed.

All risks associated with service delivery are allocated to the private party except where the project deed specifies a risk the government party has retained, on the basis it is better value for money for the risk to be managed by the government party. The payment mechanism, and the associated performance regime, is the key tool for enforcing this risk allocation to the private party in a project deed.