Social

Summary Matrix

Cautionary note: The summary matrix identifies typical risk allocation on an aggregated basis. For each risk allocation, however, there are generally exceptions. For the full discussion on typical risk allocation arrangements, please see the detailed guidance provided in the matrix below.

Purpose of Matrix

This page contains a matrix of risks typically found in a hospital PPP transaction, together with guidance on how those risks are typically allocated between the Contracting Authority and the Private Partner, the rationale for such risk allocation, mitigation measures and possible government support arrangements. It aims to provide governments (and, additionally, private sector stakeholders) with targeted guidance on the appropriate allocation of project risks in a PPP contract.

Cautionary Note

This matrix contains an indicative – but not exhaustive - list of the main risks typically to be considered in hospital PPP projects and their typical allocation between the Contracting Authority and the Private Partner. It may be used as a starting point for understanding the risk allocation issues commonly arising in hospital projects and for developing an individual risk matrix for the project in question. A project’s individual circumstances and its jurisdiction will influence the appropriate contractual risk allocation and there may be additional risks that need to be considered.

See Detailed Risk Identification and Analysis in the introduction.

Key Risks

  • Design risk and change orders: Hospitals are complex buildings with a number of potential technical service requirements, such as the provision of HVAC (heating, ventilation and air conditioning) and medical fluids, and complex interfaces between the building and the requirements of clinical services. A change of scope in the design phase (e.g. coming from the clinical staff) can often have a significant impact on timing and cost for any required re-design works and ultimately on the delivery of the construction works, The parties therefore have to carefully assess the risk allocation for such changes which arise after the signing of the contract during the design approval processes.

  • Medical equipment: Where the Contracting Authority retains some or full responsibility for the provision of medical equipment, this may need to be installed prior to the commissioning process and completion. The Private Partner’s construction programme (and order of works) should be required to take account of this equipment installation phase. See Works completion delays under Construction risk.

  • Clinical functionality interface: The Contracting Authority will be ultimately responsible for the delivery of clinical services at the hospital and will therefore bear the overall risk of the hospital allowing clinical functionality during the operating phase. However, to mitigate this risk, the Contracting Authority may include clinical functionality requirements within the output specification that the Private Partner is required to achieve in designing and constructing the hospital. See Design risk.

  • Interface: Interface with Contracting Authority/government personnel (especially clinical staff and patients) and the effect of their actions on risk allocation is particularly key in the operating phase, where, for example defects in the building could give rise to contamination/infection control issues (and a requirement for deep cleans of areas) and equipment failures could delay the provision of services to patients. Similar issues could arise in respect of a failure by Contracting Authority employees in relation to security of the site if responsibilities are shared. See Vandalism and Interface under Operating risk and Site security under Land availability, access and site risk.

  • Environmental and health standards: There will be increased sensitivity around environmental and health standards as the project affects patients and the provision of clinical services - this will be a focus for all parties in design, construction  and performance standards for the project, as well as when considering the impact of the project on the wider community. See Design risk, Performance/price risk under Operating risk, Social risk and Environmental risk.

  • Existing asset condition:  Where the Private Partner is rehabilitating existing structures and/or integrating them into new project structures, the condition of the existing structures will be a key part of the Private Partner’s due diligence. See Existing asset condition and site condition under Land availability, access and site risk, Suitability of design under Design risk, Project management and interface with other works/facilities under Construction risk and Maintenance standards under Operating risk.

Type of Project and Scope Considerations

This matrix addresses the common risks for the design, build, finance, operation, maintenance and transfer to the Contracting Authority (at the end of the PPP contract) of a new PPP hospital on a single site.

Scope may include provision of cleaning, care taking, ICT provision and security services, but typically not clinical services as the Contracting Authority will be primarily responsible for the provision of clinical services during the operating phase.

Additional risk allocation considerations will be relevant if the Private Partner’s scope extends to the supply and maintenance of specialist clinical equipment for some or all of the terms of the PPP contract.

The Private Partner’s scope may also include other (mandatory) service provision to other third parties (e.g. the operator of a private hospital wing) at the Contracting Authority's option and/or oblige the Private Partner to manage certain commercial activities at the hospital (e.g. managing retail units, such as pharmacies).

The project scope may entail an entirely new build hospital, a refurbishment of an existing hospital (in whole or part), or a combination of both, and involve one or more buildings.

Assumptions

The Private Partner finances the development of the new hospital and only starts to receive payment from the Contracting Authority (and/or where applicable, users) once the hospital is in operation.

The Contracting Authority will be primarily responsible for the provision of clinical services during the operating phase.

The Contracting Authority provides the site for the new hospital buildings. Control of any existing buildings forming part of the project scope is transferred to the Private Partner for the purposes of the project. If the Contracting Authority retains certain responsibilities in relation to existing or new hospital buildings this must be factored into the risk allocation.

The hospital (and all related project assets) are handed back to the Contracting Authority on early termination or natural expiry of the contract, together with all consents and licences (including intellectual property licences) necessary to continue operating the hospital, in accordance with the contractual handback requirements.

Market Approaches

Hospital PPP projects may involve new build/extension or rehabilitation or a combination of all these elements. As well as PPP approaches, there are other contractual structures and procurement models that Contracting Authorities can use to deliver hospital infrastructure with private sector involvement. These include direct procurement of just the construction (or rehabilitation) of a hospital, and procurement of standalone maintenance and other service contracts.

The risks and associated guidance included in this will be relevant to different contractual structures and procurement models, but will need to be adapted appropriately taking into account the scope and duration of the relevant contract and financing methods (such as whether there is a need for long term third party lending and how the pricing mechanism works).

Project Revenues, Including Payment Mechanisms

Most social infrastructure PPP projects are funded wholly or primarily through government payments because the nature of the service provided is not compatible with transferring demand risk and there is no or limited third party/user revenue generation opportunity. It may also be national policy that the service being provided is paid for by government. In hospital PPP projects, project revenues are generated through availability payments by the Contracting Authority and deductions or penalties are typically applied where the Private Partner has not met contractual availability and performance standard criteria.

Some social infrastructure PPP contracts have contained requirements for certain soft services (e.g. such as cleaning and catering) to be periodically benchmarked (e.g. through comparative data) or market tested (e.g. through competitive tendering of those services) during the operational period. The purpose is to ensure that the price the Contracting Authority pays for these elements is market competitive and not over inflated at the start of the contract as bidders price in employment and other related cost contingencies for the entire term of the contract. These processes can be disruptive to the service when it is otherwise operating smoothly with the existing sub-contractors and can result in the Private Partner being obliged to work with contractors that it has not chosen itself but is responsible for managing. This can be a particular issue where there are a number of services involved and can distract from the core service provision. An alternative is for the Contracting Authority to retain responsibility for and carry out certain soft services itself or sub-contract them to other private sector contractors on a shorter term more flexible basis (in this instance, interface issues would need addressing).

If the Private Partner is obliged to manage certain commercial activities at the hospital (e.g. managing retail units, such as pharmacies), it will receive payment for this typically through the availability payment. If these are instead treated as third party revenue, the parties will need to agree appropriate risk allocation and pricing impact. See Type of Project and Scope Considerations above, Other Considerations below and Performance/price risk under Operating risk.

Other Considerations

Staged operation commencement: A single operation commencement regime is more common on a single site hospital. In some cases, however, the Contracting Authority may wish to implement a multi-staged operation commencement process enabling the Private Partner to begin to receive payment once significant components of the project are substantially completed. This can help increase cash flow during the overall construction process, reduce the Private Partner’s financing costs and incentivize the phasing of construction works in order to ensure critical components are completed on time. On the other hand, staged completion dates may also increase the complexity of the construction programme, limit the Private Partner’s ability to mitigate construction delays and/or may have delay damages attached to them if the staged dates are not met, which can overall increase the risk to the Private Partner. This is likely only to be suitable where distinct sections of the hospital can become operational in phases and where commencement of operation will not distract from ongoing construction requirements (or vice versa).

If the contract requires ‘non-core’ service provision to other entities, or requires the Private Partner to run commercial activities (in addition to the core service under the contract), the contract must allocate the risk of such activities. Broadly speaking, the Private Partner will bear the risks associated with the commercial activities for which it is responsible, except (in limited cases) as regards some interface risk. If commercial activity ceases to be possible due to regulatory reasons or other factors attributable to the Contracting Authority or government, the contract will provide for the consequences (e.g. in MAGA and/or change in law provisions). This may include amending certain provisions, including price (e.g. particularly if the Private Partner has been paid a fee for managing such commercial activities). See MAGA risk and Change in law risk.

Private Sector Risk Mitigation

Allocation of risks to sub-contractors: See Risk Allocation in PPP contracts in the Introduction and Cost increases and Works completion delays under Construction risk. As regards construction, the Private Partner will often enter into a lump sum construction contract with a construction sub-contractor to pass down its obligations under the PPP contract and to manage the risk of cost increases and delays (subject to certain relief to which the sub-contractor will be entitled under the sub-contract). The Private Partner will bear the risk of liability caps agreed under the sub-contract being reached or warranty periods under the sub-contract being shorter than the Private Partner’s defect rectification obligations towards the Contracting Authority. The Private Partner will similarly typically enter into an agreed price operating sub-contract with an operating sub-contractor to pass down its operating phase obligations to the extent practicable.

Insurance: See Risk Allocation in PPP contracts in the Introduction.

Effective implementation of social and environmental management plan: Increased standards as regards health, safety and infection control/contamination as patients and clinic services are involved. See Environmental risk and Social risk.

Additional equity and other funding support: See Market Conditions in the Introduction.

Public Sector Risk Mitigation

Carrying out detailed feasibility and ground surveys: See PPP Project Preparation and Delivery in the Introduction. In addition, studies for hospital projects should include identification of land, interface with existing buildings (where applicable) and social and environmental impact of both the construction and operation of the hospital. Detailed ground surveys should also be carried out where practicable. Where such information is provided to bidders to rely on in pricing their bids, Contracting Authorities may elect to guarantee accuracy but not necessarily completeness or interpretation - this will depend on project-specific factors including the experience of the bidders and the ability to obtain other relevant information.

Clinical interface: Given that the Contracting Authority will be responsible for the provision of clinical services during the operating phase and may also be responsible for how clinical services are performed, the Contracting Authority will usually need to factor in any clinical functionality requirements for the hospital into the output specification to ensure that the hospital is appropriate for the provision of clinical services during the operating phase.

Running an efficient and fair procurement process: See PPP Project Preparation and Delivery in the Introduction. Enacting enabling legislation (if required) and complying with domestic procurement laws in relation to the project are primarily the Contracting Authority’s risk and responsibility. As the Private Partner will be affected by the consequences of breach of such legislation, it will carry out due diligence itself on these matters. Interference with the tender process and other issues attributable to the Private Partner will remain a Private Partner risk.

Timely consultation on social and environmental impact: It is key for the Contracting Authority to consider the effect of the project on people, wildlife and habitat and to implement effective management of stakeholder interests and public perception before and (in conjunction with the Private Partner) during the project. This will include assessing the potential increase in traffic around the site both during and after construction (e.g. the adequacy of patient parking arrangements). See Environmental risk and Social risk.

Having competent advisers: See Detailed Risk Identification and Analysis in the Introduction.

Timely involvement of internal stakeholders and contract management team: See Detailed Risk Identification and Analysis in the Introduction.

Careful assessment and quantification of risk: See Detailed Risk Identification and Analysis in the Introduction.

Taking performance security: : The Contracting Authority may seek certain security directly from the Private Partner and its sub-contractors, or their parent companies, in respect of certain contractual (or tender) obligations. This may be in the form of bid bonds during the tender stage and, following the tender stage, completion bonds, performance bonds and guarantees.  As an alternative, cash reserving mechanisms could be used during the life of the contract. The Contracting Authority will be able to call on this security in certain circumstances (such as performance failures by the Private Partner). Security has a cost attached which will feed through to pricing. Disproportionate security requirements will negatively affect value for money.

Public Sector Support Measures

Where the Contracting Authority’s own credit is weak or uncertain, additional credit support may be sought by the Private Partner and its lenders. This may be the case, for example, in projects where the Contracting Authority is not part of central government or it is a local authority. To mitigate this Contracting Authority counterparty risk, a sovereign or central government (e.g. finance ministry) guarantee (or equivalent support) may be needed or co-contracting required, though the full implication for the public sector should be carefully assessed, including the potential impact on the government’s contingent liabilities and fiscal sustainability. See Demand risk, Project Revenues, Including Payment Mechanisms above and Strength of Contracting Authority payment covenant under Early termination risk.


 

Key
Allocation of Risk
Circumstance Dependent Risk

Land Availability, Access and Site Risk Land Availability, Access and Site Risk

The risk associated with selecting land suitable for the project; providing it with good title and free of encumbrances; addressing indigenous rights;  obtaining necessary planning approvals; providing access to the site; site security; and site and existing asset condition.

Risk Category and Description

PublicSharedPrivate

Provision of required land - general

Public Risk
Shared Risk
Public Risk
Shared Risk

[Public Risk]
The Contracting Authority typically bears the risk of acquiring the required land interests for the project, whether through compulsory acquisition/expropriation or other powers, because it has powers to do so which the Private Partner does not. It is also in the Contracting Authority’s interest because on expiry of the contract the asset will typically revert to public ownership and operation (and/or the contract will be subsequently re-tendered). The Contracting Authority is generally responsible for providing a “clean” accessible site, with no restrictive land title issues.

[Circumstance Dependent Risk]
During the feasibility stage (see PPP Project Preparation and Delivery in the Introduction), the Contracting Authority should undertake detailed assessments as regards ownership of the relevant land and ensure that it has a complete understanding of the risks involved in acquiring the site and those that will affect the construction and operation of the hospital. Such information should be disclosed to bidders as part of the bidding process. This includes consideration of matters such as rights of way, covenants affecting use or disposal and historic encroachment issues that may encumber the land, as well as how the Contracting Authority is addressing such issues and the extent to which bidders are required to price certain risks. To the extent the Private Partner has relied on information provided and priced any such risks, it will share in those risks provided that the information relied on was accurate. Some Contracting Authorities will guarantee only correctness of data provided, not completeness or interpretation.

If the Contracting Authority needs to use its legislative powers to acquire the site (e.g. through compulsory acquisition/expropriation), this may increase social risk and other opposition to the project (e.g. due to delay caused by court cases). See also Social risk.

The importance of access to the hospital(s) (through public transport or other means) is usually an important element in the planning process, as is the inclusion of appropriate patient parking within the project.

Market Comparison Summary

In certain markets, land rights (in particular reliable utilities records, and land charges and third party rights to (access) land) may be less clear than in other markets where established land registries and utility records exist and risks can be mitigated with appropriate due diligence. Where reliable information is not available, this will increase the risk of delay, cost increases and disputes. This makes it more likely that the Contracting Authority will need to bear the associated risk as the Private Partner will not be able to bear them.

The rights of private landowners against compulsory acquisition/expropriation might be stronger in developed markets, so the Contracting Authority may need to allow more time to acquire the land.

Many hospitals in developed markets are built on or adjacent to existing hospital land (or co-located with other hospitals), to minimise disruption to the opening of a new hospital and the smooth transition of clinical services). Completion of the new hospital building is then often followed by demolition of the old hospital building.

Timing of provision of required land

Public Risk
Public Risk

Acquisition pre-signature: The Contracting Authority should complete the process of land acquisition before the contract is awarded so that all issues and risks are known and managed. All relevant processes will need to be carried out in a timely manner. The timeframe will depend on the issues affecting the site and the applicable processes. The risk that all necessary processes have been satisfied will be the Contracting Authority’s risk.

Acquisition post-signature: If the Contracting Authority is not able to provide the land by contract award, it will bear the risk of providing it in accordance with a contractually agreed programme. Failure to obtain the land by a certain date may entitle the Private Partner to terminate the contract (see also MAGA risk). If the risk of non-availability is too great, this may deter some investors and financiers from engaging in or continuing in the bid process.

Market Comparison Summary

In certain markets, land rights (in particular reliable utilities records, and land charges and third party rights to (access) land) may be less clear than in other markets where established land registries and utility records exist and risks can be mitigated with appropriate due diligence. Where reliable information is not available, this will increase the risk of delay, cost overrun and disputes. This makes it more likely that the Contracting Authority will need to bear the associated risk as the Private Partner will not be able to bear them.

The rights of private landowners against compulsory acquisition/expropriation might be stronger in developed markets, so the Contracting Authority may need to allow more time to acquire the land.

Many hospitals in developed markets are built on or adjacent to existing hospital land (or co-located with other hospitals), to minimise disruption to the opening of a new hospital and the smooth transition of clinical services). Completion of the new hospital building is then often followed by demolition of the old hospital building.

Provision of permanent additional land

Public Risk
Private Risk
Public Risk, Private Risk

Identification pre-signature: [Public Risk]
If a permanent need for additional land is identified and agreed by the parties before contract signature then the associated risk is usually treated in the same way as the original land. Usually the Contracting Authority will bear the risk of acquiring/providing the additional land, unless the need for additional land is specific to a bidder (for example, due to a different design).

Identification post-signature: [Private Risk]
If a permanent need for additional land is only identified after contract signature then this will be a Private Partner risk as the need should have been identified and factored in to the Private Partner’s bid. The Contracting Authority may however find it needs to provide assistance with acquisition where the land is essential, with costs being borne by the Private Partner.

Market Comparison Summary

In certain markets, land rights (in particular reliable utilities records, and land charges and third party rights to (access) land) may be less clear than in other markets where established land registries and utility records exist and risks can be mitigated with appropriate due diligence. Where reliable information is not available, this will increase the risk of delay, cost overrun and disputes. This makes it more likely that the Contracting Authority will need to bear the associated risk as the Private Partner will not be able to bear them.

The rights of private landowners against compulsory acquisition/expropriation might be stronger in developed markets, so the Contracting Authority may need to allow more time to acquire the land.

Many hospitals in developed markets are built on or adjacent to existing hospital land (or co-located with other hospitals), to minimise disruption to the opening of a new hospital and the smooth transition of clinical services). Completion of the new hospital building is then often followed by demolition of the old hospital building.

Provision of temporary additional land

Public Risk
Private Risk
Public Risk
Private Risk

Identification pre-signature: [Circumstance Dependent risk] 
Where temporary additional land needs (e.g. for materials or equipment storage during construction) are identified in the procurement phase and are common to all bidders, then the associated risk is usually treated in the same way as the original land. Usually the Contracting Authority will bear the risk of acquiring/providing such land, unless the need for such land is specific to a bidder (for example, due to its construction methods and equipment) – in which case the risk should be allocated to that bidder and the cost factored into its bid price.

The Contracting Authority may however find it needs to provide assistance in some cases, with the cost being borne by the Private Partner.

Identification post-signature: [Private risk]
Where temporary additional land needs (e.g. for materials or equipment storage during construction) are identified, they should be a Private Partner risk as such need should have been identified and factored into the Private Partner’s bid. The Contracting Authority may however find it needs to provide assistance in some cases, with the cost being borne by the Private Partner.

Heritage / indigenous land rights

Public Risk
Private Risk
Public Risk
Private Risk

Land rights issues involving indigenous groups will be the responsibility of the Contracting Authority. The Private Partner will bear the risk of complying with legislation and contractual obligations imposed on it in this regard.

The Private Partner’s obligations with regard to indigenous rights is well legislated for in some markets. In the absence of legislation, indigenous land rights issues and community engagement can be managed by the Contracting Authority through the adoption of internationally recognised social and environmental standards and practices for the project (e.g. compatible with the Equator Principles). This will be particularly relevant if international financing options are desirable.

See also Social risk.

Market Comparison Summary

This issue is coming under increasing focus from multilateral agencies and other finance parties, as well as civil society and human rights organisations. For example, the World Bank’s commitment to sustainable development is set out in its Environmental and Social Framework which includes standards that both it and its borrowers must meet in projects it is to finance. Many finance parties (including commercial finance parties) adhere to the Equator Principles, committing to ensure the projects they finance (and advise on) are developed in a manner that is both socially responsible and reflects sound environmental management practices (as described in the Equator Principles).

Examples of specific legislation are native title legislation in Australia and the equivalent First Nations law in Canada. These include a requirement to seek consent from the indigenous parties affected and to enter into indigenous land use agreements.

Resettlement

Suitability of land

Public Risk
Shared Risk
Private Risk
Public Risk, Shared Risk
Private Risk

General: [Shared Risk]
General: The risk that the land is not suitable is typically shared as the Contracting Authority may be able to secure the availability of the land, but its suitability may be dependent on the Private Partner’s design and construction plan. See also Design risk.

Underground: [Circumstance Dependent Risk]
Risk with regard to stability and suitability of the underground sits with the Contracting Authority if no or unreliable data is available and the risk cannot be transferred (or transferring the risk does not represent value for money). To the extent reliable data is available in the tender phase and can be relied upon by the Private Partner, the risk sits with the Private Partner. See also Site condition under Land availability, access and site risk.

Key planning consents

Public Risk
Private Risk
Public Risk
Private Risk

Pre-signature: [Public Risk]
In most projects, there will be a benefit if planning consent for key permits and other key approvals can be obtained by the Contracting Authority before procurement – these may include key environmental consents.

If zoning laws only allow for public services on the land, this may restrict the use of the buildings for commercial purposes. If this is important to the Contracting Authority (for example to optimise pricing or local support) the planning process needs to cater for such new / additional use.

Post-signature: [Circumstance Dependent Risk]
If consents for key permits are not obtained before contract signature and the Contracting Authority wants to sign the contract, it will typically bear the risk of the consents being delayed or not obtained (subject to the Private Partner complying with any reasonable requirements) – this may be treated as a compensation event. Failure by the Contracting Authority to obtain the consents by a certain date is likely to entitle the Private Partner to terminate the contract. Permit risk may be complicated further if there are different levels of authorities involved, and interaction between levels of design and authorisations may impact the timeline. If the risk of non-availability is too great, this may deter some investors and financiers from engaging in or continuing in the bid process. See also MAGA risk, Design risk and Environmental risk.

Market Comparison Summary

In some jurisdictions, it may not be possible to obtain the requisite planning consents until such time as the Private Partner has been identified and/or the detailed design for the project is known.

Subsequent planning approvals

Public Risk
Private Risk
Private Risk
Public Risk

Obtaining subsequent detailed planning consent and other approvals will be a Private Partner risk. However, the Contracting Authority will share this risk to the extent the relevant authority does not act properly or within approval process deadlines - this may be treated as a compensation event. See also Environmental risk and MAGA risk.

Access to the site and associated infrastructure

Public Risk
Private Risk
Public Risk, Private Risk

Construction phase:[Public Risk]
In principle the Contracting Authority will be responsible for ensuring the Private Partner can access the site during construction (including for example closing adjacent roads to enable construction to take place over them). This can be particularly key in densely populated areas. Either (i) it will pay the costs of providing access itself, or (ii) the Private Partner will pay such costs and be reimbursed through the contract price to the extent it has priced such costs into its bid.  This will depend on the nature of the access required.  Failure to provide access may be treated as a compensation event or MAGA event. See also MAGA risk.

Operation phase: [Public Risk]
It is in the Contracting Authority’s interests to ensure patients, visitors and all staff can get to the hospital entrance and typically this is a Contracting Authority risk. Preventing the Private Partner accessing the site to carry out the project may be treated as a compensation event or MAGA event. See also MAGA risk.

[Private Risk]
Provision of access on the hospital site itself is, where the Private Partner is providing operational and maintenance services during the operating phase, typically the Private Partner’s responsibility (e.g. keeping entrances, corridors and site walkways clear of snow/other obstacles).

Market Comparison Summary

Third party rights to (access) land may not be easily identifiable in some jurisdictions, increasing risk of delay, cost increases and disputes. This makes it more likely that the Contracting Authority will need to bear the associated risks.

Site security

Public Risk
Private Risk
Public Risk, Private Risk

Risk allocation with respect to site security will depend on the political climate, nature of the risk and the stage of the project. Parties should aim to have a complete understanding of the risks involved in physically securing the site and those that will affect the construction and operation of the hospital.

Construction phase: Ordinarily the Private Partner will be responsible for construction site security, but there may be interface issues if the site is part of an existing hospital site. In certain cases, the Contracting Authority may need to use statutory means to properly secure the site for the Private Partner (such as police involvement or eviction). Failure may be treated as a compensation or MAGA event. See also Force majeure risk, MAGA risk, Social risk and Vandalism under Construction risk and Operating risk

MARKET COMPARISON SUMMARY

For example, in some projects, there may be issues safeguarding hospital buildings and equipment.

Operation phase: Where responsibility for security is shared there will be interface risk issues to address (e.g. where the Private Partner is only required to secure the site between certain hours outside of which the Contracting Authority is responsible, for example, through the hospital staff it employs direct). Where particular security issues exist, the Contracting Authority may in some circumstances be required to provide additional site security / assistance during operations to manage this risk. Failure to do so may be treated as a compensation or MAGA event. See also Force majeure risk, MAGA risk, Social risk and Vandalism under Construction risk and Operating risk.

There will usually be strict requirements on access by third parties to the site during the operating phase in order to protect patients. The responsibility for meeting these requirements is usually shared between the Private Partner and the Contracting Authority (or hospital).

Utilities and installations

Public Risk
Shared Risk
Private Risk
Shared Risk, Private Risk
Public Risk

Costs or delays caused by relocation of /access to utilities: [Private Risk]
To the extent reliable data is available and shared during the tender process, the Private Partner can bear and price the corresponding risk of any costs or delays caused by statutory undertakers and utility providers in carrying out diversions or connections. Costs and delays caused by re-location of existing utilities or access to utilities for the purposes of the project which are due to the Private Partner’s design or construction plan are usually allocated to the Private Partner. For connections to existing infrastructure, see also Project management and interface with other works/facilities under Construction risk.

[Circumstance Dependent Risk]
The Contracting Authority will bear risk if no reliable information is available. It will also bear risk to the extent data provided by it and relied upon by the Private Partner in its bid proves inaccurate.

Lack of data on existing utilities location can make it difficult for the Private Partner to assess (and price) the cost and time needed for relocation which can impact on the construction timetable and ultimately on meeting the operation commencement date. If the Private Partner bears this risk, the Contracting Authority may need to share the risk by capping the Private Partner’s liability or by having a cost sharing mechanism.

MARKET COMPARISON SUMMARY

In some markets or challenging locations, there may be little data on location of utilities (water, sewage, oil, gas, optical fibre etc.) and the Private Partner may be unable to accept all or part of this risk.

Costs or delays caused by utility provider: [Circumstance Dependent Risk]
Costs and delays caused by a utility provider could arise in both phases and the risk will be allocated according to the relevant circumstances and market and ownership of the utility. The risk could be shared or allocated to the Contracting Authority.

MARKET COMPARISON SUMMARY

In markets where the utility provider is a private entity, this risk is likely to be treated as a relief event (and the utility company will bear the risk) - this is common in mature markets. In less mature markets, particularly where the utility provider is a state-owned entity, the risk is likely to be allocated to the Contracting Authority as a compensation or MAGA event.

Site condition

Public Risk
Shared Risk
Private Risk
Public Risk, Shared Risk, Private Risk

Surveyed: [Circumstance Dependent Risk]
The Contracting Authority usually undertakes detailed geotechnical and ground/soil surveys for the relevant site during the feasibility stage (if not already publicly available) and discloses such information as part of the bidding process. It should also carry out surveys and provide all available information to the Private Partner about the existing buildings (such as construction and materials used). Sharing the surveys and information will save bidders’ costs (all which would otherwise feed through to the Contacting Authority in the contract price). To the extent reliable data is available and shared during the tender process, the Private Partner can bear and price the corresponding risk of such conditions causing cost and delay.

The Contracting Authority will bear risk to the extent data provided by it and relied upon by the Private Partner in its bid proves inaccurate. Some Contracting Authorities will guarantee only accuracy, not completeness or interpretation of the data.

MARKET COMPARISON SUMMARY

In a mature market, the Contracting Authority normally hands over the site to the Private Partner in an “as-is” condition on the basis of the surveys provided. The Private Partner can rely on the surveys but otherwise bears the risk.

In some markets, the bidders carry out the surveys during the tender process - this may be the best solution in some circumstances, but may also limit competition unless bidders are compensated for these costs.

Unsurveyed: [Circumstance Dependent Risk]
Where it is not possible to fully survey site condition prior to award (e.g. where the existing site makes this difficult), the risk for unsurveyable land will be allocated to the Contracting Authority (e.g. as a compensation event). The risk may be shared by the Private Partner  (e.g. as a relief event) in some circumstances, for example where the risks were within the knowledge of the Private Partner when it priced its bid or an experienced contractor would have considered their existence as being possible. The impact on the project and the cost of remediation works for certain existing site conditions can be significant so the ultimate risk allocation will depend on the project specifics.

MARKET COMPARISON SUMMARY

In some markets there may be less historic data available to the parties to assess risk. It may however be easier to perform comprehensive surveys on a less built-up site.

Cultural / Archaeological finds: [Circumstance Dependent Risk]
Discovery of artefacts can cause delays and costs as there may be legal or other requirements in relation to reporting them and permitting archaeological study. The risk allocation will depend on the nature of the project, the extent to which the risk was known to and priced by the Private Partner, the reliability of data provided by the Contracting Authority and whether the project location is considered high risk. One approach is to share the risk such that the Private Partner bears the risk in respect of designated areas (such as a low risk area) and the Contracting Authority bears the risk outside such areas (such as a high risk area). Another approach is for the Private Partner to be obliged to coordinate work, but for the Contracting Authority to appoint specialised contractors and to bear cost/delay and interface risk. 

MARKET COMPARISON SUMMARY

In markets where reasonable surveys/assessment can be made and the risk priced, discovery of finds is often treated as a relief event.

Unexploded bombs, land mines and other munitions: [Circumstance Dependent Risk]
Discovery of munitions can cause delays and costs as they will need to be defused and removed. The risk allocation will depend on the nature of the project, the extent to which the risk was known to and priced by the Private Partner, the reliability of data provided by the Contracting Authority and whether the project location is considered high risk.

MARKET COMPARISON SUMMARY

In markets where reasonable surveys/assessment can be made and the risk priced, discovery of munitions risk is often treated as a relief event. In some countries, the risk of unexploded land mines can be high and specific surveying and cost provisions may need to be agreed.

Pre-existing environmental pollution: [Circumstance Dependent Risk]
Pre-existing pollution is typically the Contracting Authority’s risk except to the extent it was known to and priced by the Private Partner. Remediation works for certain existing environmental conditions can be expensive so the ultimate risk allocation will depend on the project specifics and the surveys provided to the Private Partner.

See also Environmental risk and Change in law risk.

Existing asset condition

Public Risk
Private Risk
Private Risk
Public Risk

Where there are existing assets proposed to be used in the project (for example, a pre-existing hospital building), they should be fully surveyed (and potentially warranted) by the Contracting Authority. To the extent reliable data relating to the condition of existing assets is shared by the Contracting Authority during the tender process and can be relied upon during implementation, the Private Partner can price the risk of using them, including the interface with other aspects of the project and latent defect risks. The Private Partner will then bear the corresponding risk. The Contracting Authority will bear risk to the extent such data proves inaccurate or insufficient, and to the extent of any warranties it provides. Some Contracting Authorities will guarantee only accuracy, not completeness or interpretation.

If latent defects are discovered in assets which are due to be replaced at some point in the life of the contract (e.g. the main heating boiler), the Contracting Authority may be able to mitigate its risk to some extent by having a contractual mechanism which brings forward the replacement date. See also Suitability of design under Design risk, Project management and interface with other works/facilities under Construction risk and Maintenance standards under Operating risk.

Market Comparison Summary

Some projects (e.g. in the UK and Belgium) have treated asbestos risk and other existing buildings risk separately to other site risks. In the case of asbestos, this is because of its prevalence in certain construction eras, the costs involved in disposing of it and because it may only be discovered once refurbishment/demolition has begun.


Key
Allocation of Risk
Circumstance Dependent Risk

Social Risk Social Risk

The risk associated with the project impact on adjacent properties and affected people; including public protest and unrest); resettlement; indigenous land rights; and industrial action.

Risk Category and Description

PublicSharedPrivate

Community and businesses

Public Risk
Private Risk
Public Risk
Private Risk

Resettlement

Public Risk
Private Risk
Public Risk
Private Risk

Heritage / indigenous people

Public Risk
Private Risk
Public Risk
Private Risk

Industrial action

Public Risk
Shared Risk
Private Risk
Public Risk, Shared Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Environmental Risk Environmental Risk

The risk associated with pre-existing conditions; obtaining consents; compliance with laws; conditions caused by the project; external events; and climate change.

Risk Category and Description

PublicSharedPrivate

Obtaining environmental consents

Public Risk
Private Risk
Private Risk
Public Risk

Compliance with environmental consents and laws

Private Risk
Private Risk

Environmental conditions caused by the project

Private Risk
Private Risk

External environmental events

Public Risk
Shared Risk
Public Risk, Shared Risk

Climate change event

Public Risk
Shared Risk
Shared Risk
Public Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Design Risk Design Risk

The risk that the design is not suitable for the purpose required; approval of design; and changes.

Risk Category and Description

PublicSharedPrivate

Suitability of design

Public Risk
Private Risk
Private Risk
Public Risk

Approval of designs

Public Risk
Private Risk
Private Risk
Public Risk

Changes to design

Public Risk
Private Risk
Public Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Construction Risk Construction Risk

The risk of construction costs exceeding modelled costs; completion delays; project management; interface; quality standards compliance; health and safety; defects; intellectual property rights compliance; industrial action and vandalism.

Risk Category and Description

PublicSharedPrivate

Cost increases

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Works completion delays

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Project management and interface with other works/facilities

Public Risk
Private Risk
Private Risk
Public Risk

Quality assurance and other construction regulatory standards

Shared Risk
Shared Risk

Health and safety compliance

Private Risk
Private Risk

Liability for death, personal injury, property damage and third party liability

Private Risk
Private Risk

Defects and defective materials

Private Risk
Private Risk

Intellectual property

Public Risk
Private Risk
Private Risk
Public Risk

Industrial action

Public Risk
Shared Risk
Private Risk
Public Risk, Private Risk
Shared Risk

Vandalism

Shared Risk
Private Risk
Private Risk
Shared Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Variations Risk Variations Risk

The risk of changes requested by either party to the service which affect construction or operation.

Risk Category and Description

PublicSharedPrivate

Variations Risk

Public Risk
Shared Risk
Private Risk
Public Risk, Private Risk
Shared Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Operating Risk Operating Risk

The risk of events affecting performance or increasing costs beyond modelled costs; performance standards and price; availability of resources; intellectual property rights compliance; health and safety; compliance with maintenance standards; industrial action; and vandalism.

Risk Category and Description

PublicSharedPrivate

Increased operating costs and affected performance

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Performance/ price risk

Private Risk
Private Risk

Operational resources or input risk

Shared Risk
Private Risk
Shared Risk, Private Risk

Intellectual property

Public Risk
Private Risk
Private Risk
Public Risk

Health and safety compliance

Public Risk
Private Risk
Private Risk
Public Risk

Liability for death, personal injury, property damage and third party liability

Public Risk
Private Risk
Private Risk
Public Risk

Maintenance standards

Public Risk
Private Risk
Public Risk, Private Risk

Interface

Public Risk
Shared Risk
Shared Risk
Public Risk

Industrial action

Vandalism

Shared Risk
Private Risk
Private Risk
Shared Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Demand Risk Demand Risk

The risk of user levels being different to forecast levels; the consequences for revenue and costs; and government support measures.

Risk Category and Description

PublicSharedPrivate

Demand Risk

Public Risk
Public Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Financial Markets Risk Financial Markets Risk

The risk of inflation; exchange rate fluctuation; interest rate fluctuation; unavailability of insurance; and refinancing.

Risk Category and Description

PublicSharedPrivate

Inflation

Public Risk
Private Risk
Private Risk
Public Risk

Exchange rate fluctuation

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Interest rate fluctuation

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Unavailability of insurance

Public Risk
Shared Risk
Private Risk
Shared Risk
Public Risk, Private Risk

Refinancing

Shared Risk
Private Risk
Shared Risk
Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Strategic/ Partnering Risk Strategic/ Partnering Risk

The risk of the Private Partner and/or its sub-contractors not being the right choice to deliver the project; Contracting Authority intervention in the project; ownership changes; and disputes.

Risk Category and Description

PublicSharedPrivate

Private Partner failure/insolvency

Private Risk
Private Risk

Sub-Contractor failure/insolvency

Private Risk
Private Risk

Change in Private Partner ownership

Private Risk
Private Risk

Permitted Contracting Authority step-in

Public Risk
Private Risk
Public Risk, Private Risk

Change in Contracting Authority ownership/status

Public Risk
Public Risk

Disputes

Shared Risk
Private Risk
Shared Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Strategic/ Partnering Risk Strategic/ Partnering Risk

The risk of the Private Partner and/or its sub-contractors not being the right choice to deliver the project; Contracting Authority intervention in the project; ownership changes; and disputes.

Risk Category and Description

PublicSharedPrivate

Private Partner failure/insolvency

Private Risk
Private Risk

Sub-Contractor failure/insolvency

Private Risk
Private Risk

Change in Private Partner ownership

Private Risk
Private Risk

Permitted Contracting Authority step-in

Public Risk
Private Risk
Public Risk, Private Risk

Change in Contracting Authority ownership/status

Public Risk
Public Risk

Disputes

Shared Risk
Private Risk
Shared Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Disruptive Technology Risk Disruptive Technology Risk

The risk that a new emerging technology unexpectedly displaces an established technology or the risk of obsolescence of equipment or materials used.

Risk Category and Description

PublicSharedPrivate

Disruptive Technology Risk

Public Risk
Shared Risk
Private Risk
Public Risk, Shared Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Force Majeure Risk Force Majeure Risk

The risk that unexpected events occur that are beyond the control of the parties and delay or prevent performance.

Risk Category and Description

PublicSharedPrivate

Force majeure events

Public Risk
Shared Risk
Public Risk, Shared Risk

Force majeure consequences

Shared Risk
Shared Risk
Key
Allocation of Risk
Circumstance Dependent Risk

MAGA Risk MAGA Risk

The risk of actions within the public sector’s responsibility having an adverse effect on the project or the Private Partner.

Risk Category and Description

PublicSharedPrivate

Material Adverse Government Action Risk (MAGA)

Public Risk
Public Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Change In Law Risk Change In Law Risk

The risk of compliance with applicable law; and changes in law affecting performance of the project or the Private Partner’s costs.

Risk Category and Description

PublicSharedPrivate

Compliance with applicable law

Public Risk
Private Risk
Public Risk
Private Risk

Change in law (and taxation)

Public Risk
Shared Risk
Public Risk
Shared Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Early Termination Risk Early Termination Risk

The risk of a project being terminated before its natural expiry on various grounds; the financial consequences of such termination; and the strength of the Contracting Authority’s payment covenant.

Risk Category and Description

PublicSharedPrivate

Contractual termination provisions

Shared Risk
Shared Risk

Contracting Authority default termination

Public Risk
Public Risk

MAGA / Change in law termination

Public Risk
Public Risk

Voluntary Termination by Contracting Authority

Public Risk
Public Risk

Force Majeure and Uninsurability termination

Shared Risk
Shared Risk

Private Partner default termination

Private Risk
Private Risk

Strength of Contracting Authority payment covenant

Public Risk
Private Risk
Public Risk
Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Condition At Handback Risk Condition At Handback Risk

The risk of deterioration of the project assets/land during the life of the PPP and the risk that the project assets/land are not in the contractually required condition at the time of handback to the Contracting Authority.

Risk Category and Description

PublicSharedPrivate

Condition At Handback Risk

Private Risk
Private Risk