Design risk

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Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required.
Feasibility study.
Approval of designs.
Changes to design.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for adequacy of the design of the system and its compliance with the output / performance specification.

The Contracting Authority may retain some design risk in certain aspects of the system or related works, depending on how prescriptive the Contracting Authority is in the output specification.

If the output specification is too prescriptive (e.g. the required route corridor or track gauge constrains the efficiency of the design or the choice of rolling stock) the Private Partner's ability to warrant the fitness for purpose of its design solution may be impacted, and the Contracting Authority will to that extent share in the design risk.

If the project is being integrated into existing infrastructure, the Private Partner's ability to warrant the fitness for purpose of its design solution may be impacted (in that it will not be able to warrant defects in the existing infrastructure that may impact performance).

Mitigation Measures (What can be done to minimize the risk)

The Contracting Authority will often broadly draft the Private Partner's design and construction obligations to satisfy the output specifications and ensure compliance with applicable legal requirements and good industry practice standards. This allows for private sector innovation and efficiency gains in the design.

A design review process will allow for increased dialogue and cooperation between the Contracting Authority and the Private Partner, however the mutual review process should not be construed as a reduction or limitation of the Private Partner's overall liability.

In a Dutch project, the output specifications are broadly defined so to allow the Private Partner's optimizations and innovative solutions. During the dialogue sessions in the tender phase, the output specifications can be changed or further detailed (ensuring level playing field between the candidates to abide by the public procurement principles).

Comparison with Emerging Market

Developed market rail projects benefit from stable resource availability and defined design standards which allow for increased innovation and productivity gains. The quality of the information provided by the Contracting Authority and limited ability to verify such data can also hinder the Private Partner's ability to unconditionally take full design risk.

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Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required. Feasibility study.
Approval of designs. Changes to design.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for adequacy of the design of the system and its compliance with the output / performance specification.

The Contracting Authority may retain some design risk in certain aspects of the system or related works, depending on how prescriptive the Contracting Authority is in the output specification.

If the output specification is too prescriptive (e.g. the required route corridor or track gauge constrains the efficiency of the design or the choice of rolling stock) the Private Partner's ability to warrant the fitness for purpose of its design solution may be impacted, and the Contracting Authority will to that extent share in the design risk.

The prescriptiveness of the output specification is usually dependent on the depth of the feasibility study.

Any delay in approving designs is a Contracting Authority risk.

For changes to design - the risk allocation depends on the reason for the change. If the original design is deficient the Private Partner will retain the risk or if the change to the design is required by the Contracting Authority it may become a Contracting Authority risk.

Mitigation Measures (What can be done to minimize the risk)

The Contracting Authority will need to decide how prescriptive it wants to be in the output specification.

It may wish to request be a degree of cooperation and feedback during the bidding phase to ensure that the bidding consortia's expectations in terms of an appropriate risk allocation for design responsibility are take into account when finalising the output specification.

Comparison with Developed Market

Emerging market rail projects may be particularly dependent on availability of reliable traction power or fuel availability, which have implications for the Private Partner's ability to meet the reliability requirements in the output specification.

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