It is important that contractual changes do not inadvertently undermine the original risk allocation established during the procurement phase. Changes over time to the project and its external environment may result in attempts by the private party to shift the overall risk allocation or transfer particular risks. For example, if changed circumstances necessitate a change in performance requirements for services, the private party may ask the government party to approve its proposed method of meeting those changed circumstances. If the government party gives such an approval, it may inadvertently take back the risk that the private party's service delivery methods are unable to meet the performance requirements. Approvals of such changes should not be given. |
An adjustment in risk allocation is an acceptable outcome of a change process in some circumstances. For example, the private party may be able to offer the government party a better value for money proposition if a risk borne by the private party is reallocated to the government party. However, this reallocation should entail a corresponding reduction in the service payment or some other offsetting benefit. Any proposal of this type should be carefully analysed by the government party in conjunction with representatives from DTF. A cost-benefit analysis can assist in analysing such a proposal.
Material changes that create budgetary or risk allocation issues need to be approved by the Treasurer (through DTF).