5.2.3  Risk Management

The Government Entity needs to ensure that the risks allocated to government are being monitored appropriately and that outlined mitigation strategies are being actioned. In doing so, the Contract Management team will often need to develop a "risk management plan" that lists out the risks and their allocation as determined during the initiation and procurement stages, along with monitoring and mitigation strategies to be decided upon and outlined in the Partnership Contract. The Contract Management team is expected to:

  Establish key indicators to detect evolving risks at certain levels: for instance, if the identified demand risk has been underestimated, and demand is actually much lower than expected, a payment might be triggered, which will have to be identified in advance, with provisions subsequently made accordingly.

  Monitor and manage in-time mitigation activities: the Government Entity and the Preferred Bidder would have agreed upon mitigating actions in order to reduce the impact of a particular risk on the project, as outlined in the Partnership Contract. Both parties must ensure that either the government or the private sector is performing the necessary controlling strategy, depending upon whom the risk is allocated to, and assure that appropriate and timely action is taken, if necessary. This could be done by either escalating the strategy to a higher level or renegotiating the contract to transfer mitigation responsibility to the party best positioned to handle such risk.

  Implement emergency measures: if there are certain unforeseeable circumstances, emergency action might have to be taken, which will have to be discussed with the Preferred Bidder and performed immediately.

A reporting system should be established to achieve a systemised risk management strategy comprising all the activities summarised above. The reporting system should be owned by the Government Entity and will be designed to facilitate upward reporting about how risk is being managed. The Contract Manager should deliver regular reports on the work performed to keep risk mitigation procedures up to date and in line with PPP agreement management objectives.