How do you assess risks in a public-private partnership?

1 Risk Identification

The first step in assessing risks in a PPP is to identify the potential sources and impacts of uncertainty on the project objectives, costs, revenues, and stakeholders. This can be done by using various tools and methods, such as brainstorming, checklists, surveys, interviews, scenarios, and risk registers. The aim is to create a comprehensive list of risks that covers all aspects of the project lifecycle, from planning and design to construction and operation.

2 Risk Allocation

The next step is to allocate the risks to the party that is best able to bear, control, or mitigate them. This can be done by using a risk matrix that shows the probability and severity of each risk and the preferred risk allocation strategy. The risk allocation strategy can be one of the following: retain, transfer, share, or avoid. The risk allocation should be based on the principle of value for money, which means that the public sector should only pay for the risks that it retains or shares, and the private sector should be compensated for the risks that it takes or mitigates.

3 Risk Management

The final step is to manage the risks throughout the project lifecycle by implementing appropriate measures to prevent, reduce, or cope with them. This can be done by using a risk management plan that outlines the roles and responsibilities of each party, the risk mitigation actions and costs, the risk monitoring and reporting mechanisms, and the risk contingency and escalation procedures. The risk management plan should be reviewed and updated regularly to reflect the changing circumstances and performance of the project.

4 Partner Selection

One of the key factors that influence the success of a PPP is the selection of a suitable private partner that has the expertise, experience, and resources to deliver the project. The partner selection process should be transparent, competitive, and fair, and should follow the criteria and requirements defined by the public sector. The partner selection process should also consider the alignment of interests, values, and goals between the public and private parties, as well as the potential synergies and conflicts that may arise during the project.

5 Contract Design

Another key factor that affects the risk profile of a PPP is the design of the contract that governs the rights and obligations of each party. The contract should be clear, comprehensive, and flexible, and should cover all aspects of the project delivery, such as scope, quality, time, cost, payment, performance, incentives, penalties, termination, and dispute resolution. The contract should also balance the risks and rewards between the public and private parties, and provide mechanisms for adjusting the contract terms in response to changing conditions or unforeseen events.

6 Stakeholder Engagement

A final factor that can influence the risk perception and acceptance of a PPP is the engagement of the relevant stakeholders, such as users, customers, regulators, investors, lenders, suppliers, contractors, employees, and communities. Stakeholder engagement is essential to ensure that the project meets the needs and expectations of the beneficiaries, and to address any concerns or issues that may arise during the project. Stakeholder engagement should be proactive, continuous, and inclusive, and should use various methods and channels, such as consultation, communication, education, and participation.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?