The project deed allocates project risks. While the private party special purpose vehicle is responsible to the government party for the project and services, the risk allocation is typically passed down to relevant consortium members through the subcontracts and other project contracts. The risk allocation between the consortium members is determined during the procurement phase and will be priced by the builder, facility management subcontractor, operator (if applicable), debt financiers, equity participants. There are often interface agreements between consortium members that specify risk allocation and the financial consequences of the risk. This is particularly relevant in relation to the payment mechanism that underpins the contractual performance regime.
The contract director should understand how risks are shared between consortium members at different stages of the lifecycle of the project. At times, there may be competing or differing views between consortium members. The contract director needs to ensure that the private party as a whole remains accountable.
In some projects, the private party or related companies of the private party will undertake commercial development activities in conjunction with the project. These activities can affect the commercial positions taken by the private party and its consortium members in dealings with government. The commercial development may also offer synergistic benefits for the Partnerships Victoria project (for example, if the commercial development is a hotel associated with a convention centre project) and there may be interface risks between the project and the commercial development. It is therefore important that the contract director understands the risks, benefits and commercial arrangements associated with the commercial development, and how these may affect the project and the private party's behaviour.