Water & Waste

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 waste to energy 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 waste to energy 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 waste to energy 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

  • Planning and Permitting Risk: Planning and permitting decisions for waste management facilities are often highly controversial in light of the associated environmental and health concerns (such as emissions, smell, noise and traffic movement).  Careful consideration should be given as to whether all key planning and environmental permits should be obtained before the PPP contract is entered into.  In the UK, a number of waste management PPP contracts were entered into before planning permissions were obtained and the Contracting Authorities incurred considerable costs in terminating or amending those contracts when planning permissions were delayed or could not be obtained. See Key planning consents under Land availability, access and site risk.

  • Technology Risk: In addition to conventional moving grate waste to energy facilities, there are many different technical solutions available for waste to energy projects, ranging from non-incineration solutions (such as composting and anaerobic digestion) to incineration solutions offering higher recycling (i.e. with front end material recovery and anaerobic digestion) to advanced thermal treatment solutions (such as gasification and pyrolosis).  Within each category there are a number of different alternative technology suppliers and there is constant technical innovation. Contracting Authorities and Private Partners need to navigate their way through these options to select the optimal technical solution for their project.  In this regard, there have been a number of projects in the UK where new technologies have suffered delays and cost increases during construction or failed to deliver the expected levels of performance, resulting in complex contractual disputes, financial losses to the Private Partner and its sub-contractors and financiers and/or the Contracting Authority and, in some case, termination of the PPP contract. See Cost increases and Works completion delays under Construction risk. With advances in technology, there is also a risk that the selected technical solution, whilst capable of managing the waste to the agreed performance standards, no longer provides the most cost effective or environmentally beneficial waste management solution. See Disruptive technology risk.

  • Waste Composition Risk: The composition of the waste delivered to a waste to energy facility can have a significant impact on its operations and revenue generation. Waste to energy facilities can generally process a wide range of waste types but low calorific waste may reduce electricity generation and high calorific waste may limit waste throughput. In the context of other facilities, waste composition can be more critical, for example in relation to composting facilities (which require a high biodegradable waste fraction) and recycling facilities (which require a minimum level of recyclable material and or limited contamination).  Where Contracting Authorities have shared the risk in relation to composition changes (usually in relation to composting based schemes), UK experience has been that the difficulties inherent in accurately mapping waste composition and then identifying the cause and effect of changes in composition (particularly where there are a number of suppliers) have resulted in a number of long running disputes between Contracting Authorities and Private Partners as to responsibility for costs and losses arising from the composition changes. See Operational resources or input risk under operating risk.

  • Environmental and Social Risk: The appropriate management and disposal of municipal waste is a critical public health issue. In light of this it is essential to ensure that (i) the waste to energy facility that has been procured provides an environmentally suitable solution; and (ii) consideration is given to how waste flows will be managed and disposed of during periods of planned and unplanned shutdowns, and who should be responsible for the additional cost.  The first point is particularly critical in relation to the evaluation of proposals for new or unproven technology as, historically, technology failures have resulted in significant adverse environmental impacts (e.g .excessive noise/odour). In relation to the second point, an assessment of the cost and availability of alternative facilities should be undertaken to ensure that alternative facilities are available and, if their cost is substantial, the Contracting Authority may need to share that cost with the Private Partner to ensure that the Private Partner does not face unsustainable losses in the event of shutdowns. See Environmental risk and Social risk.

Type of Project and Scope Considerations

This matrix addresses the common risks for the design, build, financing, operation, maintenance and transfer (at the end of the PPP contract) of a new PPP solid waste to energy plant where waste disposal capacity is made available to a state owned buyer, and with the ability to sell capacity to third parties wishing to dispose of commercial and industrial waste. Electricity generated by the plant is sold to utility companies (either state owned or private sector depending on the relevant market) and heat may be sold to industrial customers (either state owned or private sector depending on the relevant market). The plant transfers to the Contracting Authority at the end of the contract.

Waste to energy technologies vary from conventional moving grate incineration to more advanced technologies such as gasification and pyrolosis which are regarded as more environmentally friendly.  Sometimes the Contracting Authority specifies the form of technology it requires but in other cases the bidders are left to propose the technological solution as part of the procurement process. 

Projects can sometimes be procured on a partially or fully integrated basis involving the provision of other waste management related services in the locality of the project, including waste collection, operation of household waste collection facilities, waste transfer stations, recycling facilities and management and remediation of landfills (sometimes on an interim basis whilst the plant is being constructed).

Assumptions

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

The procuring entity identifies the site on which the plant will be built.

The plant (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 plant, in accordance with the contractual handback requirements.

The electricity produced from the project is sold to a third party electricity offtaker (in emerging markets this is generally a state owned electricity company) and the project will connect to the existing transmission lines and electricity distribution system which the grid network operator owns (or will own to the extent the Private Partner has built transmission infrastructure that is to be transferred to the grid network operator once completed).

Market Approaches

As well as PPP approaches, there are other contractual structures and procurement models that Contracting Authorities use to deliver waste to energy infrastructure with private sector involvement. These include direct procurement of just the construction of a waste to energy plant, and procurement of standalone maintenance and other service contracts.

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 to the pricing mechanism works).

Project Revenues, Including Payment Mechanisms

Where the Contracting Authority takes the entire waste capacity of the plant, project revenues are generated through payments by the Contracting Authority which may be structured on an availability basis. Deductions or penalties are typically applied to availability payments where the Private Partner has not met contractual availability and performance standard criteria.

Where the Private Partner is able to source third party waste to fill spare capacity at the plant, project revenues are generated through payments by the Contracting Authority and third party users which are typically on a per tonne basis for waste accepted at the plant, supported by a commitment from the Contracting Authority to provide a guaranteed minimum quantity of waste (or equivalent revenue guarantee). The Private Partner will bear an element of demand risk on this basis. See Demand risk.

Waste to energy projects will also derive income from energy sales (heat and/or electricity), typically accounting for 20 to 30 per cent of the overall project income. Energy sales revenues will be derived from energy charges which are levied at a unit price of electricity per Kwh generated with the offtaker generally committing to take all of the electricity generated by the waste to energy plant. Electricity generated by waste to energy plants is sometimes eligible for green incentive schemes such as feed in tariffs which are available to the Private Partner outside of the procurement process. In developed markets the Private Partner will usually enter into electricity offtake agreements with market participants and, where there are no available renewable incentive schemes, will be exposed to market price risk, which it may be able to mitigate through commodity hedging programs or bilateral arrangements with offtakers such as through price floors. In developing markets, the electricity offtaker is typically a state owned electricity company. The contract will need to address risk allocation in relation to the impact on energy sales of events for which the Contracting Authority/government has or shares responsibility.

Depending on the technical solution, there may also be some small additional revenue income from recycled products separated during the process, for example metals separated from bottom ash.

Other Considerations

Although a single operation commencement regime is more common, the Contracting Authority may wish to require the Private Partner to operate existing infrastructure and/or provide interim waste disposal services whilst the new plant and any other new facilities are being constructed.  This can help increase cash flow during the overall construction process and reduce the Private Partner’s financing costs but it can also increase the risk of the Private Partner in case of delay in completion of the new facilities as the costs of the interim service may increase or the alternative disposal facilities (e.g. landfill) may become exhausted.

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: 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 roads project should include identification and suitability of corridor, additional land needs, interface with existing and future road and other transport networks (and corresponding impact on the project), traffic forecasts (especially in a toll road project) and social and environmental impact of both the construction and operation of the road.  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.

Running an efficient and fair procurement process: See PPP Project Preparation and Delivery in the introduction. Enacting enabling legislation 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. 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: 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 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 or an offtaker’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 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 selecting and 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 waste to energy project. 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.

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.

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 risks 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.

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 risks 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.

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 as the Contracting Authority may be able to secure the availability of the land, but the suitability of the land may be dependent on the Private Partner’s design and construction plan (such as availability of water and power required for the proposed waste treatment process). 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.

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 of key permits 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 the UK, some waste to energy PPP contracts were entered into with financing in place before planning consents were obtained. This led to significant additional contractual complexity in terms of addressing circumstances where planning consent was substantially delayed or not obtained at all and allocating risk in relation to unexpected planning conditions.  In the face of strong local opposition, a number of these projects faced long delays in obtaining planning or failed to obtain planning at all.  This led to significant costs being incurred by Contracting Authorities when PPP Contracts had to be terminated or substantially revised as a consequence of planning failures and delays.

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 detailed design 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
Public Risk

Construction phase: In principle the Contracting Authority will be responsible for ensuring the Private Partner can access the site during construction. 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 (or from revenues derived from third party users if applicable) 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. See also MAGA risk.

Operation phase: The Contracting Authority should bear the risk of ensuring that the Private Partner and third party users can access the new waste to energy facility. If any element of the Private Partner payment depends on demand (i.e. payment by third parties for waste disposal where there is additional capacity), this will be a key Contracting Authority risk. This may be treated as a compensation or MAGA event. 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
Public Risk, Private Risk

Construction phase/operation phase: Risk allocation with respect to site security will depend on the political climate, opposition to the project, 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 waste to energy facility.

Ordinarily the Private Partner will be responsible for day to day site security. However, the Contracting Authority may need to use statutory means to properly secure the site for the Private Partner (such as police involvement or eviction) and in some circumstances may be required to provide additional site security / assistance during operations to manage this risk. 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, where there is public opposition to the waste to energy project, there may be protestor action, or there may be issues safeguarding the equipment and installation.

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, including connection to the existing transmission lines and electricity distribution system, see also Assumptions above and 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 in providing utility connections (including, in the context of a waste to energy project, electricity grid or area heating network connections) 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. See also Project management and interface with other works/facilities under Construction risk.   

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 during the feasibility stage (if not already publicly available) and discloses such information as part of the bidding process. Sharing the surveys 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. in high density urban areas), 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 in a less urban area.

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, 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, 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.


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
Shared Risk
Private Risk
Public Risk, Shared 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 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.

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
Shared Risk
Private Risk
Private Risk
Public Risk, Shared Risk

Interface

Public Risk
Shared Risk
Private Risk
Private Risk
Public Risk, Shared 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 demand levels being different to forecast levels; the consequences for revenue and costs; and government support measures.

Risk Category and Description

PublicSharedPrivate

General principles

Considerations

Public Risk
Public Risk

Higher demand than anticipated

Shared Risk
Shared Risk

Lower demand than anticipated

Private Risk
Private 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 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