Performance/price risk

Heavy rail Heavy rail

Description (What is the Risk)

The risk that the asset is able to achieve the output specification metrics and the price or cost of doing so.
Damage pollution accidents.
Meeting handback requirements.
Health and safety vandalism.
Equipment becoming prematurely obsolete.
Expansion.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

In relation to infrastructure, this risk is taken by Network Rail alone.

The Manufacturer takes the entire risk of its own performance, subject to certain 'Permitted Delay' events under the MSA, relating to matters outside its control.

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

The ORR monitors performance by Network Rail and enforces its Network Licence. It can impose monetary penalties.

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

No direct Government support.

Comparison with Emerging Market

In the UK's developed market, Network Rail is best placed to manage this risk, given its experience and resources.

Private sector manufacturers would expect to take this risk in relation to the supply of rolling stock, and have the skills and experience to do so.

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Description (What is the Risk)

The risk that the asset is able to achieve the output specification metrics and the price or cost of doing so.
Damage pollution accidents.
Meeting handback requirements.
Health and safety vandalism.
Equipment becoming prematurely obsolete.
Expansion.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner bears the risk of meeting the performance specification.

The Contracting Authority bears the risk of enforcing the regime and for ensuring that the output specification is properly tailored to what the Private Partner can deliver.

Consideration needs to be given to the ability of the Private Partner to achieve the necessary performance levels given the nature of the project and the emerging market in which it will be based.

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

In projects expecting extremely high demand, it may be difficult to achieve a meaningful punctuality / headway metric; it may be more appropriate to focus on requiring the Private Partner to provide a volume driven output service.

The Private Partner may need to require the Contracting Authority to reduce the performance requirements during the settling in period and possibly readjust the performance metrics once the performance of the system has settled down. This would mitigate the risk of long-term performance failure.

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

Where certain performance indicators cannot be met due to actions by the Contracting Authority or unforeseen circumstances, the Private Partner may be eligible to seek relief or compensation.

Comparison with Developed Market

For emerging markets, particularly in the case of market first projects, the preparation of attainable standards by the Contracting Authority is complicated by the lack of relevant market data.

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