Maintenance risk

Port Port

Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for meeting the appropriate standards regarding maintenance as set out in the output specifications defined by the Contracting Authority.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors, rehabilitation work, and in certain project model instances, work stemming from implementing technological or structural changes.

The Contracting Authority may retain the responsibility of performing certain soft services (e.g. cleaning, security, minor management services, etc.) where economical.

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

The Contracting Authority should take time to ensure that the output specification properly defines the maintenance obligations on the Private Partner to ensure that the system remains robust in the event of early termination or expiry of the agreement. There will be requirements that will need to be met by the Private Partner on hand back and a reserve account or bonding may be required to be provided by the Private Partner as security for its obligations.

The primary role of the Contracting Authority is to properly define the output specifications and level of services required of the Private Partner.

Adequate performance by the Private Partner can be further enforced by ensuring that the payment mechanism considers quality and service failures. The Contracting Authority will be allowed to adjust payment to the Private Partner based on meeting or failing to meet certain performance standards. There may also be other remedies such as warning notices and right to replace subcontractors.

Comparison with Emerging Market

In developed markets, the involvement of the Private Partner in the operation, maintenance and rehabilitation of the project provides several benefits by incentivizing greater care and diligence by the Private Partner in the construction phase, and increasing the useful life of the infrastructure.

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Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.
Maintenance of surrounding non-project maritime infrastructure.
Maintenance dredging.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for maintaining the port infrastructure to the appropriate standards set out in the output specification defined by the Contracting Authority.

Where there is integration of the system into existing infrastructure, the Contracting Authority may need to retain the maintenance or latent defect risk of some of the existing assets and fit for purpose standards appropriately adjusted.

The Contracting Authority however will often be responsible for maintaining the access channels (including maintenance dredging), turning circle and docking zones.

The Contracting Authority will also usually be responsible for maintaining the related equipment used in the provision of marine services (and procuring replacement or additional equipment where required).

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

The Contracting Authority should take time to ensure that the output specification properly defines the handback obligations on the Private Partner to ensure that the port infrastructure remains robust in the event of early termination or expiry of the agreement.

Failure to get the output specification right for the project effectively transfers the maintenance risk back to the Contracting Authority.

The Contracting Authority should ensure that the port authority is capable of fulfilling its maintenance obligations (ie by ensuring it has adequate funds and capacity to do so).

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

The Contracting Authority may be required to guarantee and proactively manage the maintenance of the existing maritime infrastructure that integrates with the project.

Comparison with Developed Market

In emerging market port projects there is typically a greater focus on the obligations of the Contracting Authority in relation to the upgrade and continued maintenance of the supporting hinterland infrastructure as well as on the port authority's ability to provide the marine services and maintain the related maritime infrastructure.

Failure by the Contracting Authority to do so will impact on the efficiency of the port (especially in relation to vessel berth and cargo dwell times) and will ultimately impact on the Private Partner's ability to effectively implement the project.

In emerging markets inefficient port operation impacts the competitiveness of the project and is a major concern for Private Partners.

Improving efficiency can lower total transaction costs and will boost the competitiveness of a project.

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