Upfront thinking and risk allocation—lessons from PPPs
When it comes to learning lessons from completed large-scale capital projects, public-private partnerships (PPPs)—with their inherently large scale, complex risk allocation structures and debt financing profile—can provide interesting insights that apply to PPPs and wider, traditionally financed infrastructure projects.
PPPs by their nature can experience long lead-in times as the required business cases are prepared and approved, and evaluation criteria, procurement documents, contractual agreements and statutory approvals are sourced. This can cause frustration among external stakeholders. However, this upfront investment can create a better-developed and better-understood partnership between the private and public sectors, where risks can be appropriately understood and allocated and a successful template developed for the long-term operation of a critical societal asset.
The table below discusses some of the most recently observed key risks in delivering PPPs both in Ireland and internationally, along with mitigation methods that could be considered in the context of exchequer-funded projects.
Key risk |
Mitigation methods |
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Tenderers not being of sufficient financial standing or robustness |
|
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Lack of sufficient competition |
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Risk of final bids not achieving value for money (VfM) |
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Difficulty in agreeing on the allocation of interface risks where existing assets are in play |
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These key risks and associated mitigation methods can be relevant to large-scale, complex capital projects, whether procured by traditional means or alternative methods such as PPPs or concessions.
Key actions Businesses can take today
1. Early consideration of project/programme risks
Day one is when project sponsors should start thinking about their project or programme risks and how to mitigate them. This early consideration frames how the relevant project or programme will be procured and what advice and support project sponsors may need throughout the project life cycle.
2. Early engagement with the market
Project sponsors often feel pressured to bring a project to the tender stage as quickly as possible to meet internal timelines. A lot of critical information can be gathered before commencing the tender process from informal or formal market soundings, including the availability of tenderers, the risk appetite of the market and commercial contractual considerations.
3. Consideration of the most appropriate procurement and contracting methods
Having considered the points above, project sponsors should assess the procurement and contractual avenues available to their project and assess the most appropriate path forward. The Infrastructure Guidelines emphasise this process with the Approving Authority review of the Detailed Business Case and Procurement Strategy at Approval Gate 2. While the Infrastructure Guidelines encourage the Capital Works Management Framework from a contracting strategy perspective, it is not a ‘one-size fits all’. More complex or lengthy infrastructure projects, in particular, should strongly consider alternative options to ensure the contract fits the project and its stated objectives.
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If you are looking for a team of experts to support the planning and delivery of your capital projects, our Capital Projects and Infrastructure team is here to help. Our project professionals offer a range of services through the full project life cycle, including procurement, governance, risk management, financial and economic appraisal, strategy, economics, project management, ESG and more. We combine industry experience, expertise and insight to drive confidence in infrastructure outcomes, delivering solutions for clients and communities alike. Contact us today to learn more about how we can help you achieve the right outcome.
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