Risk allocation - Revision history

Designing Buildings at 07:40, 21 October 2021

2021-10-21T07:40:39Z

← Older revision		Revision as of 07:40, 21 October 2021
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	For more information see: Risk register.		For more information see: Risk register.
		+
		+	[https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/941536/The_Construction_Playbook.pdf The Construction Playbook, Government Guidance on sourcing and contracting public works projects and programmes Version 1], produced by the Cabinet Office and published in December 2020 states: 'Inappropriate allocation of risk remains one of the main concerns of suppliers looking to do business with government. It is also one of the most frequent issues raised by the National Audit Office in their audits of government contracts.'
		+
		+	Risk allocation and pricing approaches, guidance note, published by the Government Commercial Function in May 2021 states: ‘Allocation and management of risk is central to all commercial contracts and is one of the core commercial principles informing the approach to contracting with third parties. Each party seeks to minimize its overall risk and maximize its reward, which creates an inherent tension between contracting parties. Government can manage risk by carefully negotiating provisions to transfer or share risk with suppliers. If a supplier is put in a position where they are managing an inappropriate balance of risk then the outcome is highly likely to be poor value for money (a high-risk premium will be loaded into the price), underperformance against the core contract objectives (as supplier focus increasingly shifts to cost cutting) and/or an onerous contract which could ultimately lead to its collapse.’

	= Public Private Partnerships (PPPs) =		= Public Private Partnerships (PPPs) =
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	For more information see: Public Private Partnerships		For more information see: Public Private Partnerships

−	[https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/941536/The_Construction_Playbook.pdf The Construction Playbook, Government Guidance on sourcing and contracting public works projects and programmes Version 1], produced by the Cabinet Office and published in December 2020 states: 'Inappropriate allocation of risk remains one of the main concerns of suppliers looking to do business with government. It is also one of the most frequent issues raised by the National Audit Office in their audits of government contracts.'	+	= Related articles on Designing Buildings =
−		+
−	= Related articles on Designing Buildings ~~Wiki~~ =	+

	* Build, own, operate and transfer (BOOT).		* Build, own, operate and transfer (BOOT).

Designing Buildings at 06:44, 14 January 2021

2021-01-14T06:44:08Z

← Older revision		Revision as of 06:44, 14 January 2021
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	* Risk register.		* Risk register.

−	[[Category:Theory]] [[Category:Procurement]] [[Category:Public_project]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Theory]] [[Category:Procurement]] [[Category:Public_project]]

Designing Buildings at 10:34, 17 December 2020

2020-12-17T10:34:58Z

← Older revision		Revision as of 10:34, 17 December 2020
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	For more information see: Public Private Partnerships		For more information see: Public Private Partnerships
		+
		+	[https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/941536/The_Construction_Playbook.pdf The Construction Playbook, Government Guidance on sourcing and contracting public works projects and programmes Version 1], produced by the Cabinet Office and published in December 2020 states: 'Inappropriate allocation of risk remains one of the main concerns of suppliers looking to do business with government. It is also one of the most frequent issues raised by the National Audit Office in their audits of government contracts.'

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Editor at 17:00, 2 June 2020

2020-06-02T17:00:05Z

← Older revision		Revision as of 17:00, 2 June 2020
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	* Concession agreement.		* Concession agreement.
	* Construction contract.		* Construction contract.
		+	* Design build finance transfer (DBFT).
	* Design build operate (DBO).		* Design build operate (DBO).
	* Design risk management.		* Design risk management.

Designing Buildings at 08:50, 9 July 2019

2019-07-09T08:50:54Z

← Older revision		Revision as of 08:50, 9 July 2019
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	* Construction contract.		* Construction contract.
	* Design build operate (DBO).		* Design build operate (DBO).
−	* Design ~~reisk~~ management.	+	* Design risk management.
	* Flexibility in PPP Contracts: Best practices from countries where Abertis operates.		* Flexibility in PPP Contracts: Best practices from countries where Abertis operates.
	* Government Construction Strategy.		* Government Construction Strategy.

Designing Buildings at 08:50, 9 July 2019

2019-07-09T08:50:43Z

← Older revision		Revision as of 08:50, 9 July 2019
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−	= ~~Risk allocation generally~~ =	+	= Introduction =

	The term risk can have a number of different meanings in the construction industry, relating to health and safety, project costs, time and so on. In any project, minimising risk is critical to avoid adverse situations such as:		The term risk can have a number of different meanings in the construction industry, relating to health and safety, project costs, time and so on. In any project, minimising risk is critical to avoid adverse situations such as:
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	* A failed project.		* A failed project.

−	To avoid such scenarios, it is in the interest of all parties on a construction project to aim for risk minimisation, mitigation or ~~eliminiation~~.	+	To avoid such scenarios, it is in the interest of all parties on a construction project to aim for risk minimisation, mitigation or elimination.

−	~~Rist~~ allocation relates to determining who is responsible for dealing ~~withi~~ risks. Normally, risk should be allocated to the party that is best able to manage it or the party best able to control or minimise the impact of the risk. And if in managing the risk also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.	+	Risk allocation relates to determining who is responsible for dealing within risks. Normally, risk should be allocated to the party that is best able to manage it or the party best able to control or minimise the impact of the risk. And if in managing the risk also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.

−	For example, consultants may be best placed to manage design risks, whereas the contractor may be best placed to manage construction risks. The situation becomes more complex when there are unknowns, such as conditions below existing structures; items that have third party dependencies, such as planning permission (~~particualry~~ on design and build projects); variation in costs over time; items for which responsibility is split between more than one party, and so on.	+	For example, consultants may be best placed to manage design risks, whereas the contractor may be best placed to manage construction risks. The situation becomes more complex when there are unknowns, such as conditions below existing structures; items that have third party dependencies, such as planning permission (particularly on design and build projects); variation in costs over time; items for which responsibility is split between more than one party, and so on.

−	Investors will be particularly keen to minimise project risks, especially on large, time critical, or complex projects. But this cannot happen until the risks on a project are ~~properyl~~ analysed and understood. This may involve developing a risk register, that identifies the likelihood, and severity of a risk, as well as management strategies and responsibility allocation.	+	Investors will be particularly keen to minimise project risks, especially on large, time critical, or complex projects. But this cannot happen until the risks on a project are properly analysed and understood. This may involve developing a risk register, that identifies the likelihood, and severity of a risk, as well as management strategies and responsibility allocation.

	For more information see: Risk register.		For more information see: Risk register.
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	PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.		PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.

−	One of the key drivers for value for money in PPP delivery models was optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private partner. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays, cost overruns and ~~evern~~ long-term maintenance.	+	One of the key drivers for value for money in PPP delivery models was optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private partner. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays, cost overruns and even long-term maintenance.

	Challenges involved with allocating risk in PPP include:		Challenges involved with allocating risk in PPP include:
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	* Concession agreement.		* Concession agreement.
	* Construction contract.		* Construction contract.
−	* Crown build.
−	* Crown Representative.
	* Design build operate (DBO).		* Design build operate (DBO).
−	* ~~Equivalent project relief provisions~~.	+	* Design reisk management.
	* Flexibility in PPP Contracts: Best practices from countries where Abertis operates.		* Flexibility in PPP Contracts: Best practices from countries where Abertis operates.
	* Government Construction Strategy.		* Government Construction Strategy.
	* Independent Client Advisers.		* Independent Client Advisers.
	* Integrated Supply Team.		* Integrated Supply Team.
−	* Managing the procurement process.
−	* Major Projects Authority.
−	* Midland Expressway Ltd v Carillion Construction Ltd & Others.
−	* OGC.
−	* Output-based specification.
	* PF2 (successor to PFI).		* PF2 (successor to PFI).
	* Partnership.		* Partnership.
−	* Pre-Contract Services Agreement.
−	* Private developer scheme.
	* Private Finance Initiative.		* Private Finance Initiative.
−	* ~~Private sector~~.	+	* Risk.
−	* ~~Procurement route~~.	+	* Risk management.
−	* ~~Public procurement.~~	+	* Risk register.
−	* Public project definition.	+
−	* Unprecedented innovation and new technologies on the horizon.	+

	[[Category:Theory]] [[Category:Procurement]] [[Category:Public_project]]		[[Category:Theory]] [[Category:Procurement]] [[Category:Public_project]]

Designing Buildings at 08:48, 9 July 2019

2019-07-09T08:48:00Z

← Older revision		Revision as of 08:48, 9 July 2019
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	= Risk allocation generally =		= Risk allocation generally =

−	In any project, minimising risk is critical to avoid adverse situations such as:	+	The term risk can have a number of different meanings in the construction industry, relating to health and safety, project costs, time and so on. In any project, minimising risk is critical to avoid adverse situations such as:

	* Physical harm to those involved,		* Physical harm to those involved,
Line 9:		Line 9:
	* A failed project.		* A failed project.

−	To avoid such scenarios, it is in the interest of all parties on a construction project to aim for risk minimisation or eliminiation. Normally, risk is allocated to the party that is best able to manage it or the party best able to control or minimise the impact of the risk. If this involves understanding the risk, controlling the likelihood of it occurring and minimising its impact, it should also include managing that risk. And if in managing the risk also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.	+	To avoid such scenarios, it is in the interest of all parties on a construction project to aim for risk minimisation, mitigation or eliminiation.

−	~~Investors will be particularly keen~~ to ~~minimise project~~ risks~~, especially on large infrastructure projects~~. ~~This will~~ be ~~key~~ to ~~ensuring~~ the ~~right level~~ of ~~finance flows into a project but this cannot happen until~~ the ~~risks on a project are analysed and understood~~. ~~Once this is successfully undertaken,~~ risk ~~impact mitigation strategies can~~ be ~~devised~~.	+	Rist allocation relates to determining who is responsible for dealing withi risks. Normally, risk should be allocated to the party that is best able to manage it or the party best able to control or minimise the impact of the risk. And if in managing the risk also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.

−	~~It is therefore important~~ to:	+	For example, consultants may be best placed to manage design risks, whereas the contractor may be best placed to manage construction risks. The situation becomes more complex when there are unknowns, such as conditions below existing structures; items that have third party dependencies, such as planning permission (particualry on design and build projects); variation in costs over time; items for which responsibility is split between more than one party, and so on.

−	* Ensure the ~~best-possible~~ risk allocation	+	Investors will be particularly keen to minimise project risks, especially on large, time critical, or complex projects. But this cannot happen until the risks on a project are properyl analysed and understood. This may involve developing a risk register, that identifies the likelihood, and severity of a risk, as well as management strategies and responsibility allocation.
−	* Drive the lowest project costs	+
−	* Provide the greatest value for money (VFM).	+	For more information see: Risk register.

	= Public Private Partnerships (PPPs) =		= Public Private Partnerships (PPPs) =

−	Public Private Partnerships (PPPs) tend to be used on large infrastructure projects where failure to achieve optimal risk allocation could be ~~calamitous in many respects~~. PPPs are a very broad range of partnership ~~where~~ the public and private sectors collaborate for some mutual benefit. This may involve ~~covering a range of~~ partnerships to deliver policies, services, buildings or infrastructure~~, from hospital catering, bridges to maintenance and renewal of urban railways. PPPs usually involve private agencies alliancing with either central or local government~~.	+	Public Private Partnerships (PPPs) tend to be used on large infrastructure projects where failure to achieve optimal risk allocation could be very serious. PPPs are a very broad range of partnership in which the public and private sectors collaborate for some mutual benefit. This may involve partnerships to deliver policies, services, buildings or infrastructure.

	PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.		PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.

−	One of the key drivers of value for money in PPP delivery models is optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private ~~agency~~. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays ~~and~~ cost overruns~~. The~~ long-term maintenance ~~of the built asset is also the responsibility of the private partner~~.	+	One of the key drivers for value for money in PPP delivery models was optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private partner. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays, cost overruns and evern long-term maintenance.

−	~~== Risk allocation principle in PPP ==~~	+	Challenges involved with allocating risk in PPP include:
−		+
−	~~The benefits of efficient risk allocation in PPP include:~~	+
−		+
−	* For the public partner include getting a good, value for money deal for society;	+
−	* For the private agency it ensures the project can be financed and has a good return in relation to the overall risk which may be involved.	+
−		+
−	== Challenges involved with allocating risk in PPP ==	+

	* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money;		* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money;
	* It is difficult to predict what, if any, risks will be faced by the private partner over a 30-40-year maintenance period, and		* It is difficult to predict what, if any, risks will be faced by the private partner over a 30-40-year maintenance period, and
−	* Although in principal allocating risk may seem straightforward, in reality it may be challenging. ~~For example, PPP practitioners often simplify who is best able to bear~~ risk; this can ~~reduce value for money~~.	+	* Although in principal allocating risk may seem straightforward, in reality it may be challenging.
		+	* Private partners price the risk they are being required to accept, and this can result in PPP contracts becoming expensive in the long term.
		+
		+	For more information see: Public Private Partnerships

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Editor at 18:34, 27 June 2019

2019-06-27T18:34:40Z

← Older revision		Revision as of 18:34, 27 June 2019
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	One of the key drivers of value for money in PPP delivery models is optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private agency. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays and cost overruns. The long-term maintenance of the built asset is also the responsibility of the private partner.		One of the key drivers of value for money in PPP delivery models is optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private agency. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays and cost overruns. The long-term maintenance of the built asset is also the responsibility of the private partner.

−	=== Risk allocation principle in PPP ===	+	== Risk allocation principle in PPP ==

	The benefits of efficient risk allocation in PPP include:		The benefits of efficient risk allocation in PPP include:
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	* For the private agency it ensures the project can be financed and has a good return in relation to the overall risk which may be involved.		* For the private agency it ensures the project can be financed and has a good return in relation to the overall risk which may be involved.

−	=== Challenges involved with allocating risk in PPP ===	+	== Challenges involved with allocating risk in PPP ==

	* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money;		* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money;

Editor at 18:34, 27 June 2019

2019-06-27T18:34:01Z

← Older revision		Revision as of 18:34, 27 June 2019
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		+	= Risk allocation generally =
		+
	In any project, minimising risk is critical to avoid adverse situations such as:		In any project, minimising risk is critical to avoid adverse situations such as:

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	=== Risk allocation principle in PPP ===		=== Risk allocation principle in PPP ===
−
−

	The benefits of efficient risk allocation in PPP include:		The benefits of efficient risk allocation in PPP include:

Editor at 18:33, 27 June 2019

2019-06-27T18:33:12Z

← Older revision		Revision as of 18:33, 27 June 2019
Line 1:		Line 1:
−	Public Private Partnerships (PPPs) are a very broad range of partnership where the public and private sectors collaborate for some mutual benefit. This may involve covering a range of partnerships to deliver policies, services, buildings or infrastructure, from hospital catering, bridges to maintenance and renewal of urban railways. ~~Partnerships~~ involve private agencies alliancing with either central or local government.	+	In any project, minimising risk is critical to avoid adverse situations such as:
		+
		+	* Physical harm to those involved,
		+	* Unplanned costs
		+	* Disputes
		+	* Programme overruns.
		+	* A failed project.
		+
		+	To avoid such scenarios, it is in the interest of all parties on a construction project to aim for risk minimisation or eliminiation. Normally, risk is allocated to the party that is best able to manage it or the party best able to control or minimise the impact of the risk. If this involves understanding the risk, controlling the likelihood of it occurring and minimising its impact, it should also include managing that risk. And if in managing the risk also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.
		+
		+	Investors will be particularly keen to minimise project risks, especially on large infrastructure projects. This will be key to ensuring the right level of finance flows into a project but this cannot happen until the risks on a project are analysed and understood. Once this is successfully undertaken, risk impact mitigation strategies can be devised.
		+
		+	It is therefore important to:
		+
		+	* Ensure the best-possible risk allocation
		+	* Drive the lowest project costs
		+	* Provide the greatest value for money (VFM).
		+
		+	= Public Private Partnerships (PPPs) =
		+
		+	Public Private Partnerships (PPPs) tend to be used on large infrastructure projects where failure to achieve optimal risk allocation could be calamitous in many respects. PPPs are a very broad range of partnership where the public and private sectors collaborate for some mutual benefit. This may involve covering a range of partnerships to deliver policies, services, buildings or infrastructure, from hospital catering, bridges to maintenance and renewal of urban railways. PPPs usually involve private agencies alliancing with either central or local government.

	PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.		PPPs were first developed in the UK in the 1990s. The idea was that private sector companies could be more efficient at providing certain services than public authorities and so, compared to conventional delivery methods, PPP could deliver better value for money for taxpayers.
Line 5:		Line 25:
	One of the key drivers of value for money in PPP delivery models is optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private agency. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays and cost overruns. The long-term maintenance of the built asset is also the responsibility of the private partner.		One of the key drivers of value for money in PPP delivery models is optimal risk allocation. Most long-term risks in a conventional delivery model are borne by the public partner, whether local or central government. In contrast, a PPP model allows the public partner to transfer liability to the private agency. In this way, government is relieved of shouldering the cost of those risks which it is least able to manage; this includes risks such as construction delays and cost overruns. The long-term maintenance of the built asset is also the responsibility of the private partner.

−	=== Risk allocation principle ===	+	=== Risk allocation principle in PPP ===

−	In PPP, allocating risk is normally to the party best able to manage it or the party best able to control or minimise the impact of the risk. If this involves understanding the risk, controlling the likelihood of it occurring and minimising its impact, it should also include managing that risk. And if in managing the risk it also involves bearing its financial cost, there will be greater incentive to take measures to mitigate that risk.

−	~~Taken together, these principles can:~~
−
−	* Generating best-possible risk allocation
−	* Drive the lowest project costs
−	* Provide the greatest VFM.

	The benefits of efficient risk allocation in PPP include:		The benefits of efficient risk allocation in PPP include:

−	For the public partner include getting a good, value for money deal for society;	+	* For the public partner include getting a good, value for money deal for society;
−		+	* For the private agency it ensures the project can be financed and has a good return in relation to the overall risk which may be involved.
−	For the private agency it ensures the project can be financed and has a good return in relation to the overall risk which may be involved.	+

−	=== Challenges involved with allocating risk ===	+	=== Challenges involved with allocating risk in PPP ===

−	* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money.	+	* Government may be better able to shoulder the risk: transferring it to a private agency may be costly and reduce value for money;
−	* It is difficult to predict what, if any, risks will be faced by the private partner over a 30-40-year maintenance period.	+	* It is difficult to predict what, if any, risks will be faced by the private partner over a 30-40-year maintenance period, and
	* Although in principal allocating risk may seem straightforward, in reality it may be challenging. For example, PPP practitioners often simplify who is best able to bear risk; this can reduce value for money.		* Although in principal allocating risk may seem straightforward, in reality it may be challenging. For example, PPP practitioners often simplify who is best able to bear risk; this can reduce value for money.