Design risk

Toll Road Toll Road

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 toll road and its compliance with the output / performance specification.

The Contracting Authority may provide to the bidders a basic design, but bidders will be responsible for any errors, if they assume this design for their detailed design.

However, in some road projects, as in Germany for example, there is only limited room for individual design, since all key aspects and many details are already fixed in the official planning approval decision. If the Private Partner wants to deviate from these requirements it must conduct formal amendment procedures, which in practice have not taken place yet.

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 performance 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.

The Private Partner will mitigate risks by appropriately allocating such risks to appropriate subcontractors.

Government Support Arrangements (What other government measures may be needed to be taken)

The Contracting Authority usually provides for a basic design, but bidders will be responsible for any errors, if they adopt this design for their detailed design.

Comparison with Emerging Market

Developed market toll road 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 performance specification.

If the performance specification is too prescriptive (e.g. the required route corridor constrains the efficiency of the design) 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.

Prescriptiveness of performance specification dependant on depth of feasibility study.

Delay in approving designs Contracting Authority risk.

Changes to design depend on reason for change - original design deficient Private Partner risk or change required by Contracting Authority may be a Contracting Authority risk.

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

The Contracting Authority may wish to limit how prescriptive it should be in the performance 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 finalizing the performance specification.

The Private Partner will mitigate risks by appropriately allocating such risks to appropriate subcontractors.

Government Support Arrangements (What other government measures may be needed to be taken)

The Contracting Authority usually provides for a basic design, but bidders will be responsible for any errors, if they adopt this design for their detailed design.

Comparison with Developed Market

Emerging market toll road projects may be particularly dependent on availability of reliable resources necessary for construction and operation, which have implications for the Private Partner's ability to meet the reliability requirements in the performance specification.

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