Maintenance risk

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Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased waste volumes including third party waste.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared

The Private Partner will have principal responsibility for meeting the appropriate standards regarding maintenance as set out in the output specifications defined by the Contracting Authority.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors, rehabilitation work, and in certain project model instances, work stemming from implementing technological or structural changes.

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

The Contracting Authority should take time to ensure that the output specification properly defines the maintenance obligations on the Private Partner to ensure that the facility remains robust in the event of early termination or expiry of the agreement.

The primary role of the Contracting Authority is to properly define the output specifications and level of services required of the Private Partner.

Further, the Contracting Authority may establish a facilities management committee to oversee the Private Partner's performance of the maintenance and rehabilitation services, along with a formal mechanism to discuss and resolve performance related issues.

Adequate performance by the Private Partner can be further enforced by ensuring that the payment mechanism considers quality and availability failures. The Contracting Authority will be allowed to adjust payment to the Private Partner based on meeting or failing to meet certain performance standards. There may also be other remedies such as warning notices and right to replace subcontractors.

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

Generally speaking, the Contracting Authority's undue interference with the Private Partner's provision of maintenance and rehabilitation services (with the exception of minor management services) reduces the benefits of the BOT project model.

Comparison with Emerging Market

In developed markets, the involvement of the Private Partner in the operation, maintenance and rehabilitation of the project provides several benefits by incentivising greater care and diligence by the Private Partner in the construction phase, and increasing the useful life of the infrastructure.

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