2.62 The PPP contracts optimise the risk allocation between parties to ensure that the risk sits with the party best placed to manage the risk. The majority of risks have been transferred from the DoE to the Project Company, with the Project Company then transferring these risks again to the most appropriate party including the construction contractor and the FM Contractor through separate contracts. Risk ultimately is retained by the Project Company in these instances and is managed through the Project Agreement Payment Mechanism.
2.63 The risks transferred include design, construction, construction defects, availability, performance, maintenance, financing, and insurance.
2.64 Benefits from the transfer of the construction and defects risk have already been realised for the Pilot PPP Schools Bundle, with latent defects resolved within the 12-year period and a fixed cost to the DoE for the construction with performance deductions for any delays. For the conventional schools, the DoE had liability to pay for any increased costs, delays, and rectification of defects where they could not be passed to the construction contractor in the absence of the middle party: The Project Company.
2.65 Since the schools have been operational under the PPP contracts, the DoE is guaranteed that the Pilot PPP Schools remain available and in a good condition, with performance by the FM Contractor in line with the Services Specification. There is no variance in costs except with inflation which is capped, reducing risk further. Where the availability, condition, or service requirements are not met, the DoE is entitled to make deductions against the UC. By comparison, the DoE must manage availability, condition, and services to the Conventional Schools at its own risk. These costs are liable to fluctuate more based on market rates and as evidenced throughout Condition and FM reviews, there is no guarantee that a certain standard will be met.
2.66 The transfer of maintenance risk at the Pilot PPP Schools through the FM Contractor and Lifecycle fund has also been evidenced through the significantly lower Backlog Maintenance identified at the Pilot PPP Schools. At the Conventional Schools, this risk has been retained and remains a risk with higher levels of Backlog Maintenance and poorer Statutory Compliance evidenced.
2.67 At the Pilot PPP Schools, financing is procured by the Project Company, reducing the level of financial management resource required by the DoE.
2.68 At the Pilot PPP Schools, insurance risk is transferred to the Project Company in that where a claim is unsuccessful or not covered, the Project Company is liable for rectification costs, whereas at the Conventional Schools there is no middle party to take this risk other than the authority.
2.69 Overall, in this contract, there are no obscure risks retained by the DoE that would not be considered normal risk allocation for a PPP contract. There are two main risks retained by the DoE, Change in Law and Usage.
a. An increase in costs caused by a Change in Law (with an impact on the cost of performance exceeding €1,500 indexed) is a cost to the DoE. This risk is commonly retained by the authority across PPP projects and the threshold is in line with typical PPP contracts.
b. The DoE is liable to pay the full Unitary Charge for the facilities/services even if a PPP School is not in use (unless this is down to unavailability through service failures). If a Conventional School was surplus to requirement, then the DoE could close the school which would result in a reduction in costs.
2.70 Risk allocation of latter PPP Bundles is understood to have progressed as contracts have been amended following lessons learnt, however this is outside the scope of this Review. The review comments should therefore be considered in the context of this being one of the first PPPs procured and not representative of all PPPs.