One of the key elements of the PPP model is the transfer of risk to the Project Company; however, it should be emphasised that there is a range of public interest risks that will remain with the Procuring Authority regardless of the risk allocation. Aspects such as environmental issues, health and safety, or community engagement, where the actions (or lack of action) by the Project Company have the potential to affect the public, must be considered by the Procuring Authority. These issues have the potential to affect the reputation of the Procuring Authority, regardless of how the risk in question has been allocated.
The Procuring Authority has an obligation to monitor and support the Project Company, both to protect its own reputation if an incident were to occur, and for the fundamental reason that a government body should be concerned with the welfare of its citizens.
Issues regarding stakeholder management and engagement may present risks for the public and for the Procuring Authority, particularly on large and high-profile projects, which PPPs often are. Construction works have a significant effect on those who interact with the project in any way, whether through noise or vibration associated with the work itself, or the inconvenience of road closures. A lack of engagement will make the experience of those affected more difficult, as well as affecting the reputation of the Procuring Authority. Stakeholder engagement is detailed in Section 3.3 (Stakeholder engagement).
Where the risk and responsibility for stakeholder management and consultation is passed to the Project Company, there is a risk that the work done on that stakeholder management by the Procuring Authority pre-bid will be lost. The Procuring Authority should give careful consideration to remaining involved in stakeholder management to assist in ensuring appropriate behaviour of both the Project Company and the stakeholders.
There are several other matters that may threaten the ongoing provision of services that have the potential to become public interest issues. For example, when the Project Company experiences financial difficulties, even where they are entirely the result of the materialisation of risks allocated to the Project Company, if they lead to insolvency then services may be halted, which will affect the public. The issue of insolvency is detailed in Chapter 6 (Insolvency).
EXAMPLE Environmental issues The Project Company on a road project in a developed market agreed to pay compensation towards local community projects after it allowed water that had been polluted by construction works to enter the local waterways. The underlying cause of the incident was related to the unusual soil composition in the area (leading to higher than average settlement time and consequently the overflow of settlement ponds in heavy rain). The construction contractor was not accustomed to these conditions, and the Procuring Authority concluded that it could have emphasised this soil challenge more than it did and mitigated the risk. |
EXAMPLE Public engagement issues On a light rail project in a developed country, there were issues that required third party stakeholder consent, and were therefore critical. The Procuring Authority took a proactive approach in facilitating these consents and managing the implications for the project. The Procuring Authority established its own stakeholder management team, and is considering retaining this risk for future projects to avoid the costs of duplicating the work with the Project Company. On the Port of Miami Tunnel project in the USA, the construction contractor faced some challenges in terms of compliance with federal labour laws. It highlighted the importance of the Procuring Authority ensuring that the Project Company and its contractor are fully aware of the relevant laws. On this project, the Procuring Authority was also liable for fines if any of its projects were not compliant with relevant laws and regulation. For more information, see the Port of Miami Tunnel Case Study. |