Partnership risk is seen as one of the main risks by Public Entities in the Risk Survey that Marsh and PRIMO Europe conducted in the third quarter of 2009.
The survey shows that 59% of participants rate partnership risk significant – a similar amount as for public liability and business continuity risks.
All over Europe, unsuccessful projects have increased by the downturn. As a result the number of transactions and the total value has gone down. The companies bidding for projects now find it difficult to raise the capital and finance to carry them out, and public entities have their own problems in this regard, as the institutions funding their debt are running into trouble. These issues will all have impact on the time it takes for a project to reach its financial close and will increase partnership risk, whatever the contractual arrangement.
There is a strong push though from different governments around the world for PPP Projects. The European Union is developing instruments to stimulate private investors and governments to invest in PPP. Governments in the European region pushing PPP as a stimulus package tool are for example Spain, Italy, The Netherlands, Ireland and Germany after recent elections.
As an example, the Spanish Transport minister is highly stimulating the PPP Market for 2010 by improving the mechanisms of Public-Private partnerships for the construction, operation and maintenance of Infrastructure. By holding meetings with representatives from the construction and financial sector they have come to a PPP plan which will be launched at the beginning of next year.
Also the Dutch Ministry of Finance is making efforts to get schemes involved in PPP’s. One of their activities is to get a fresh source of debt by stimulating Pension Funds to invest in PPP projects.
During the roundtable on Infrastructural projects during PRIMO Europe’s ‘art of risk management ‘conference in Amsterdam the risks involved in Infrastructural projects and possible solutions to these risks were being discussed.
The risks inherent in PPP Projects can have far reaching consequences for every stakeholder throughout the lifecycle. A high percentage of infrastructural projects experience high budget overruns and long delays, this can have far reaching consequences for every stakeholder throughout the lifecycle. Rather than just technical risks, most projects face large political and managerial risks, for example change of management during a project. Most Infrastructural projects are long term projects, management of these projects often changes, which results in different project managers throughout the project which has a huge impact on its efficiency.
All partnerships require a clear insight into the role of the different parties involved and an understanding of the risks that could threaten the success of projects they undertake. Major building and service structured projects undertaken on a partnership basis involve specialist on risks that need to be identified, understood and managed. A carbon tax PPP on a toll free service involved recently construction, technology, environmental, financial risks specialists, and a public service continuity expert.
The involvement of a risk advisor enable to coordinate all these risk specialties at the earliest moment in a project enables to establish the most appropriate approach and to meet the long term objectives.
This can be achieved by:
- Identifying and managing the risk and insurance features contained in a project
- Facilitating the deal by allocating the risks to the party able to mitigate at lower cost
- Reviewing the statutory and contractual insurance obligations
- Regularly auditing all risk and insurance at construction and operational phases
- Continuously review appropriateness and the effectiveness of the agreed approach
- Review risk register on a regular basis
- Follow up on cost and timeframe of mitigation measures