Performance/price risk

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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.

However, the Contracting Authority is responsible for enforcing the regime and for ensuring that the output specifications are 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, and the appropriateness of metrics given the nature of the project. In a Dutch project this would be different. The Contracting Authority provides the Output Specifications at the start of the tender and any candidates will have to base their submissions on those specifications. During the dialogue sessions in the tender phase, the output specifications can be changed or further detailed (ensuring level playing field between the candidates to abide by the public procurement principles).

In an availability based payment structure the Private Partner may be subject to abatement if performance based standards are not met.

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

The onus falls upon the Contracting Authority to draft attainable standards based on relevant market data and policy objectives. Performance based on train reliability, availability, punctuality and quality of service can be measured against pre-determined schedules or standards.

While this is correct in the general sense, in the Dutch PPP market the Private Partner will enter into dialogue sessions with the Contracting Authority in order to determine the definite Output Specifications requested for the project.

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 Emerging Market

In developed markets, the Contracting Authority should have access to various data sources to develop realistic and attainable performance specifications and models.

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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.
Segregation from traffic.

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 ridership the Contracting Authority, it may be difficult to achieve a meaningful punctuality / headway metric; it may be 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.

To the extent possible the route should be segregated from other traffic (eg road traffic or National Railway traffic) and the Private Partner should be given appropriate relief arising out of any interface issues between existing lines/projects.

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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