Land purchase and site risk

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Description (What is the Risk)

The risk of acquiring title to the land to be used for a project, the selection of that site and the geophysical conditions of that site.
Planning permission.
Access rights.
Security.
Heritage.
Archaeological.
Pollution.
Latent defects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as it is best placed to select and acquire the required land interests for the project.

That said, there may be some areas where risk will be shared with the Private Partner. Whilst the

Contracting Authority may be able to secure the availability of the corridor, the suitability of the corridor may be dependent on the Private Partner's design solution (such as catenary location for overhead power), as well as depot location etc.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, and existing utilities and contamination either dealt with or fully surveyed and warranted. Existing assets proposed to be used in the project should also be fully surveyed and warranted. The Private Partner may take some risk for dealing with adverse conditions revealed by surveys but other unforeseeable ground risks (e.g. archaeological risks) are likely to need to be held by the Contracting Authority.

Where it is not possible to fully survey prior to award (eg identification of underground existing utilities in high density urban areas) risk will be allocated to Contracting Authority or shared.

The Contracting Authority should also consider the impact that the project will have on neighbouring properties and trades and may need to retain this risk of unavoidable interference.

In a Dutch project, the Contracting Authority is the legal owner of the project's location (and where this is not the case, shall acquire the legal title to the location) and provides access to the Private Partner on the basis of the DBFOM contract. If no (timely) access is provided, the financial loss incurred by the Private Partner will be reimbursed by the Contracting Authority. The financial loss is calculated on the basis of an 'open book' principle. Site risk (pollution, archaeology, defects in existing infrastructure) is for the Contracting Authority, unless it was evident from the available project data or could have been evident to a professional contractor.

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

The Contracting Authority should undertake detailed ground, environmental and social assessments and should disclose such information to the Private Partner as part of the bidding process.

The Contracting Authority should, to the greatest extent possible, ensure that it has a complete understanding of the risks involved in securing the site and the site constraints that will impact on the construction and operation of the system.

The Contracting Authority should also manage any indigenous land rights issues that may impact on the use of the site.

Prior to awarding the tender the Contracting Authority could (through legislation and a proper consultation process) limit the ability for potential land right owners or neighbouring properties and trades to raise claims on the land and/or for injurious affection.

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

The Contracting Authority may need to use its legislative powers to secure the site (e.g. through expropriation / compulsory acquisition).

Even where you have a legally clear site, Government enforcement powers may be needed to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner cannot be expected to deal with.

Examples include the need to manage the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk.

Comparison with Emerging Market

Land rights and ground conditions in developed markets are typically more established and risks can be mitigated with appropriate due diligence with relevant land registries and utility records.

The Private Partner's obligations with regards to indigenous rights are generally well legislated in developed markets, for example requirement to enter into indigenous land use agreements under native title legislation in Australia and the equivalent under first nations law in Canada.

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Description (What is the Risk)

The risk of acquiring title to the land to be used for a project, the selection of that site and the geophysical conditions of that site.
Planning permission.
Access rights. Security.
Heritage. Archaeological.
Pollution.
Latent defects.
Utility Installations.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as it is best placed to select and acquire the required land interests for the project.

That said, there may be some areas where risk will be shared with the Private Partner. Whilst the Contracting Authority may be able to secure the availability of the corridor, the suitability of the corridor may be dependent on the Private Partner's design solution (such as catenary location for overhead power), as well as depot location etc.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, and existing utilities and contamination either dealt with or fully surveyed and warranted. Existing assets proposed to be used in the project should also be fully surveyed and warranted. The Private Partner may take some risk for dealing with adverse conditions revealed by surveys but other unforeseeable ground risks (e.g. archaeological risks) are likely to need to be held by the Contracting Authority.

The Contracting Authority should also consider the impact that the project will have on neighbouring properties and trades and may need to retain this risk of unavoidable interference.

The removal and resettlement obligations on the Contracting Authority are continuing obligations and are typically undertaken in phases or sections at the request of the Private Partner from time to time in coordination with the construction programme.

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

The Contracting Authority should undertake detailed ground, environmental and social assessments and should disclose such information to the Private Partner as part of the bidding process.

The Contracting Authority should, to the greatest extent possible, ensure that it has a complete understanding of the risks involved in securing the site and the site constraints that will impact on the construction and operation of the system.

The Contracting Authority should also manage any indigenous land rights issues that may impact on the use of the site.

Prior to awarding the tender the Contracting Authority could (through legislation and a proper consultation process) limit the ability for potential land right owners or neighbouring properties and trades to raise claims on the land and/or for injurious affection.

Following the completion of the existing asset and utility survey, the Contracting Authority shall procure that the relevant owner, operator or manager of any utility installation enters into an agreement with the Private Partner to identify how to deal with the relevant utility installation.

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

The Contracting Authority may need to use its legislative powers to secure the site (e.g. through expropriation / compulsory acquisition).

Even where you have a legally clear site, Government enforcement powers may be needed to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner cannot be expected to deal with.

Examples include the need to manage the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk.

Comparison with Developed Market

Land rights and ground conditions (in particular reliable utilities records, and land charges) in emerging markets may be less certain than in developed markets, where established land registries and utility records exist.

In the absence of legislation in emerging markets, indigenous land rights issues and community engagement can be managed by the Contracting Authority through the adoption of IFC Safeguards for the project, particularly in order to ensure international financing options are available to the project. See comments on 'Environmental and Social Risk' for a light rail project in emerging markets.

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