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 social housing 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 social housing 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 social housing 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

  • 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.

  • Revenue risk: Depending on local market conditions, there is a risk that rental payments from tenants will be insufficient to secure a full occupancy rate for the social housing, or that the applicable rental payments are not collected or otherwise recovered from such tenants, which in each case may give rise to a revenue shortfall for either the Private Partner or Contracting Authority, depending who bears revenue risk and is responsible for rent collection. See Revenue risk.

  • Residual value: Where the Private Partner is retaining the housing stock upon expiry or early termination and is required to bear residual value risk, the housing market assessment will be a key part of the Private Partner's due diligence. See Residual value under Condition At Handback And Residual Value Risk.

  • Interface with tenants/housing associations/third parties and the effect of their actions on risk allocation: This is particularly key in the operating phase, where, for example the acts of tenants or visiting third parties can cause damage or defects to properties and the consent/co-operation of tenants will also be required in order to effect repairs and maintenance. See Interface and Vandalism under Operating risk and Site security under Land availability, access and site risk.

Type of Project and Scope Considerations

This matrix addresses the common risks for the design, build, refurbishment, finance, maintenance and transfer to the Contracting Authority (or retention by the Private Partner) (at the end of the PPP contract) of new and refurbished social housing properties.

This matrix has been prepared on the basis that housing and tenancy management services will be the responsibility of the Contracting Authority. Additional risk allocation considerations will be relevant if the project scope extends to the provision by the Private Partner of these services for the term of the PPP contract.

The scope may also include other (mandatory) service provision to other third parties (e.g. housing associations).

In some projects, scope may entail an entirely new build housing stock, refurbishment of existing housing stock (in whole or part), or a combination of both.

Assumptions

The Private Partner finances the development of the new and refurbished social housing properties and only starts to receive payment from the Contracting Authority (and/or where applicable, tenants) once the social housing properties are in operation.

The Contracting Authority provides the site for the new housing stock and transfers control (and possibly ownership) of existing housing stock forming part of the project scope to the Private Partner for the purposes of the project. However, the scope of some housing projects in developed markets (e.g. the UK) has included the Private Partner being responsible for sourcing sites for new housing stock or existing housing stock to be included as part of the project – if this is included in the scope, this will need to be factored into the risk allocation.

The housing stock is 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 and managing the housing stock, in accordance with the contractual handback requirements. However, for some housing projects the Contracting Authority may require the housing stock to be retained by the Private Partner upon early termination or expiry of the project contract – in such circumstances, the Private Partner would be required to tender an assumed residual value for the housing stock and this in turn should result in a lower unitary charge over the PPP term. See Residual value under Early termination risk.

The Contracting Authority manages tenant nominations and rental collection/revenue risk. However, depending on the local market for social housing, it may be possible for the Contracting Authority to transfer some or all of the rental collection/revenue and tenant nominations risk in respect of the housing stock to the Private Partner and the matrix includes certain relevant considerations. See Revenue risk.

Market Approaches

As well as PPP approaches such as availability or rental income-based projects, there are other contractual structures and procurement models that Contracting Authorities can use to deliver social housing infrastructure with private sector involvement. These include direct procurement on a design and build (or rehabilitation) basis of a social housing project, and procurement of standalone maintenance and other service contracts and will depend on the parties and funding sources involved.

The risks and associated guidance included in this matrix 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

Project revenues are typically derived through availability payments by the Contracting Authority or through future rental income (depending on the local housing market) payable by occupants, or a combination of both.

In the social housing sector, funding and financing structures are often complex and may involve a number of different parties (e.g. the state, social housing companies or associations, local authorities and mortgage corporations). As a result there can be a mix of funding (in addition to typical sources of project revenues such as rental payments), which may include state subsidies and rental payment guarantees). This will influence the financial structure and payment mechanisms of the contract. See Revenue risk.

In some social housing schemes, the Contracting Authority may assume responsibility for interfacing with rental parties and so will be the sole counterparty for the Private Partner, but on other schemes the Private Partner may be required to enter into arrangements with the rental parties.

Other Considerations

Staged operation commencement: A phased commencement regime is more common for social housing projects, particularly where housing stock is located on separate sites and/or includes a combination of new and refurbished housing stock.  A phased completion/handover regime 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. 

Private Sector Risk Mitigation

Allocation of risks to sub-contractors: See Risk Allocation in PPP contracts in the Introduction and Cost overruns and Works completion delays under Construction risk. As regards construction, the Private Partner will often enter into a lump sum construction/refurbishment contract(s) 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 and safety as tenants involved and works may be being carried out in close proximity to existing social housing tenants. 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 social housing projects should include identification of potential land plots, analysis of social housing demand in the relevant area and social and environmental impact of the construction of new housing, or the refurbishment of existing stock. In some countries, public policy will determine new social housing needs in specific areas. Where new housing is being constructed, detailed ground surveys may need to 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.

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 location for access to transport infrastructure (e.g. the adequacy of tenant parking arrangements or access to public transport) and other facilities, such as job opportunities, and potential increase in traffic around the site both during and after construction. See Environmental risk and Social risk.

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

Land acquisition by Private Partner: In certain markets, the Contracting Authority may decide that the Private Partner is best placed to locate and procure appropriate land sites or, in the case of refurbished housing stock, identify existing housing stock to be refurbished as social housing. The feasibility of this risk transfer will depend on certain factors including the availability of land/existing housing stock in the relevant area, the local housing market and whether the Private Partner will retain ownership of the social housing stock at expiry or upon early termination of the PPP. To the extent that the risk of locating land and/or existing stock is transferred to the Private Partner, additional risks and issues will need to be addressed by the Contracting Authority (e.g. criteria/control rights for the selection of land/existing housing stock, lease arrangements to the Contracting Authority, timing for land acquisition by the Private Partner) and this would affect the risk allocation.
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

The Contracting Authority/government may provide certain financial support to the project, in terms of subsidies or guarantees, although the consequences of such commitments and the potential liabilities for the public sector should be carefully considered, including how such support may dilute the risk/reward distribution under the PPP contract and affect value for money. Where the Contracting Authority’s own credit is weak or uncertain, additional credit support may be sought by the Private Partner and its lenders in respect of the Contracting Authority’s contractual financial obligations. 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, 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 Revenue 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. However, in certain markets, it may be feasible for the risk of land acquisition/existing housing stock acquisition to be borne by the Private Partner (see above).

Risk Category and Description

PublicSharedPrivate

Provision of required land - general

Public Risk
Shared Risk
Private Risk
Public Risk
Shared Risk, Private 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/management (and/or the contract will be subsequently re-tendered). The Contracting Authority is generally responsible for providing a "clean" accessible site or, in the case of refurbishment, free access to the existing housing stock, with no restrictive land title issues. See also Access to the site and associated infrastructure under Land availability, access and site risk.

[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 sites and those that will affect the construction and operation/management of the housing stock. 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.

In addition, the Contracting Authority will undertake detailed assessments with respect to the suitability of the land for the accommodation. Considerations will include assessing the location for access to transport infrastructure (e.g. the adequacy of tenant parking arrangements or access to public transport) and other facilities, such as local job opportunities.  

If the Contracting Authority needs to use its legislative powers to acquire the sites (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.

In certain markets, the Contracting Authority may decide that the Private Partner is best placed to locate and procure appropriate land sites or, in the case of refurbished housing stock, existing housing stock to be refurbished as social housing. The feasibility of this risk transfer will depend on certain factors including the availability of land/existing housing stock in the relevant area, the local housing market and whether the Private Partner will retain ownership of the social housing stock at expiry or upon early termination of the PPP. To the extent that the risk of locating land and/or existing stock is transferred to the Private Partner, additional risks and issues will need to be addressed by the Contracting Authority (e.g. criteria/control rights for the selection of land/existing housing stock, lease arrangements to the Contracting Authority, timing for land acquisition by the Private Partner) and would typically result in changes to the risk allocation set out below.

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.

The scope of some housing projects in developed markets (e.g. the UK) has included the Private Partner being responsible for sourcing sites for new housing stock or existing housing stock to be included as part of the project.

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 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.

The scope of some housing projects in developed markets (e.g. the UK) has included the Private Partner being responsible for sourcing sites for new housing stock or existing housing stock to be included as part of the project.

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 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.

The scope of some housing projects in developed markets (e.g. the UK) has included the Private Partner being responsible for sourcing sites for new housing stock or existing housing stock to be included as part of the project.

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]
The risk that the land is not suitable is typically shared. The Contracting Authority will typically be responsible for securing the availability of the land and assessing the location for access to transport infrastructure (e.g. the adequacy of tenant parking arrangements or access to public transport) and other facilities, such as local job opportunities, but suitability may also 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 scheme 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
Shared Risk
Public Risk
Shared Risk

[Public Risk]
The Contracting Authority will typically be required to grant the Private Partner all land rights it requires to implement the project. The Private Partner will be responsible for assessing the adequacy of the land rights granted (including any associated easements and access rights in relation to third party land). The Contracting Authority will then be responsible for ensuring the Private Party has these rights, whether by way of legislation/statutory powers or through contract. If the risk of non-availability of land access is too great, this may deter some investors and financiers from engaging in or continuing in the bid process.

Construction phase: In principle the Contracting Authority will be responsible for ensuring the Private Partner can access the site during construction. This can be particularly key in densely populated areas. Failure to provide access may be treated as a compensation event or MAGA event. See also MAGA risk.

Operation phase: [Circumstance Dependent Risk]
It is in the Contracting Authority's interests to ensure tenants and visitors and all staff can get to the social housing 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, although this may vary (e.g. be shared) to the extent the Private Partner is providing housing management services or, in respect of any housing stock owned by the Private Partner, the Private Partner has entered into the tenancy agreements with the tenants. See also MAGA risk.

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
Private Risk
Public 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 management of the housing stock.

Construction phase: [Circumstance Dependent Risk]
Ordinarily the Private Partner will be responsible for construction site security. 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.

Operation phase: [Public Risk]

Responsibility for security will depend on the scope of the accommodation project to be delivered by the Private Partner. On the assumption that housing and tenancy management services are not the responsibility of the Private Partner, the site security is likely be the risk of the Contracting Authority, who will then bear that risk or may then pass that risk on to the housing and tenancy management services provider that it engages.

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.

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.

[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.

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 in the site or any existing assets 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 Existing asset condition below, Environmental risk and Change in law risk.

Existing asset condition

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

[Circumstance Dependent Risk]
Where there are existing housing stock proposed to be used in the project and such housing stock is to be provided by the Contracting Authority (i.e. not procured by the Private Partner), they should be fully surveyed (and potentially warranted) by the Contracting Authority. To the extent reliable data relating to the condition of existing housing stock 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
Private Risk
Shared Risk
Public Risk, Private Risk
Key
Allocation of Risk
Circumstance Dependent Risk

Design Risk Design Risk

The risk that the project 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

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/management.

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
Public Risk, Private 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

Revenue Risk Revenue Risk

The risk of insufficient tenant nominations and insufficient/non-payment of rent; the consequences for revenue and costs; and government support measures.

Risk Category and Description

PublicSharedPrivate

General principles

Public Risk
Private Risk
Public Risk, Private Risk

Support measures

Shared Risk
Shared 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

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 And Residual Value Risk Condition At Handback And Residual Value 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; and the risk of the residual value of the project assets/land.

Risk Category and Description

PublicSharedPrivate

Condition At Handback Risk

Private Risk
Private Risk

Residual value

Private Risk
Private Risk