Design risk

Port Port

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 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.

Comparison with Emerging Market

Developed market port 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 port infrastructure.

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

Since the Private Partner is usually taking the majority of the economic risk on the project, the Private Partner would wish to limit the rights of the Contracting Authority to object to the proposed design or any changes to it when these would materially change the long-term interests of the Contracting Authority when the infrastructure is returned.

Comparison with Developed Market

Where the projects are proposed by Private Partners on an unsolicited basis there is likely to be little input from the Contracting Authority in the design of the project.

However where there is existing port infrastructure, competing ports in the same country or where the port is being procured for a particular industry (eg oil and gas terminals) the Contracting Authority may have more interest in defining the output specification.

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