Completion (including delay and cost overrun) risk

Solid waste collection, disposal, landfill and recycling Solid waste collection, disposal, landfill and recycling

Description (What is the Risk)

The risk of commissioning the asset on time and on budget and the consequences of missing either of those two criteria.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared

The Private Partner will bear principal responsibility for delay and cost overrun risk, and will typically manage this through the engagement of a suitable EPC contractor.

The principal risk arising out of delay will be the loss of expected gatefee revenue, the ongoing costs of financing construction, extended site costs and continuing landfill costs for waste not treated at the facility during the delay period.

The Private Partner is best placed to integrate complex civil works, the delivery and commissioning the facility, operations, and preventative and lifecycle maintenance to ensure a reliable service for an efficient price. This may be managed through a single EPC joint venture or by the Private Partner managing a series of works, supply and operation/commissioning contracts.

The Private Partner will be expected to demonstrate adequate system performance before it is given permission to operate the system. Waste management BOT projects require complex commissioning and testing regimes given the intricacies involved in ensuring that the process plant will meet the necessary reliability and performance requirements of the output specifications.

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

The combination of (i) incentives or penalties for timely completion and (ii) the implementation of a 'longstop date' (a date which is pegged to a prescribed time period after the scheduled completion date) will create the necessary tension to incentivise timely completion while allowing the Private Partner a reasonable amount of time to meet its contractual responsibilities in spite of delays before the Contracting Authority can terminate the project.

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

The Contracting Authority may have a critical role to play at stages of the construction, testing and commissioning process in terms of ensuring that any rights that it has to comment on design development and testing results do not adversely delay the project.

The Contracting Authority may allow for certain relief events, delay events or force majeure events where delays or cost overruns have arisen from either the fault of the Contracting Authority, or no-fault events.

Similarly the Contracting Authority may need to take responsibility for delays caused by the failure of public bodies to issue necessary consents in good time.

Comparison with Emerging Market

In developed markets, enforcement of construction deadlines and budgets may be easier as the Private Partner will typically have more experience and reliable resources, but Contracting Authority will need to be wary of technology risk if they are being offered processes that are new or innovative and not yet fully deployed for a meaningful test period on a commercial scale.

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