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Dialogue necessary when deciding who should bear P3 project risk, panel members agree

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by Vince Versace

There is no simple answer as to who is best suited for the long-term design and construction risk of a P3 structure and the size of that risk begins at the drawing board.

Canadian Council on Public-Private Partnerships

There is no simple answer as to who is best suited for the long-term design and construction risk of a P3 structure and the size of that risk begins at the drawing board.

“The design risk is the architectural underpinning of everything,” said Jane Bird, chief executive officer of Canada Line Rapid Transit Inc.

Bird spoke at the recent 16th annual Canadian Council on Public-Private Partnerships conference in Toronto.

She was on a panel that explored who is the best party to assume risk on a P3 project and how important is the transfer of long-term design and construction risk to the success of a P3 agreement.

Traditionally, the public owner of the infrastructure has carried the responsibility for long-term design and construction risk. Typically in a P3, the party that is “best able” to manage risk on a project should “assume responsibility” for it, P3 experts say.

Bird explained that the private sector is usually regarded as the most efficient in managing and dealing with risk as opposed to the public sector. Through her experience with Canada Line, Bird believes it is incumbent on a government to put the private sector in the best position possible to deal with the design and life-cycle cost risks of a project.

Design and maintenance programs for a P3 structure affect the life-cycle costs of a project, so the risk goes beyond the creation of a solid project design, added Massimo Polveraccio, senior vice-president, finance, Hochtief PPP Solutions, North America.

The risks that can be suitably transferred to subcontractors and design-builders are the ones that they can control, such as scheduling and quality of work, said Polveraccio. However, things likes geotechnical studies, permits and pre-existing soil conditions are not ones they can control and end up being priced accordingly if passed down to them.

The issue of risk transfer and costs gains some complexity if, during the lifetime of the structure, the use of that structure changes.

As it concerns benchmarking for life-cycle costs, as more P3 expertise and projects are developed in Canada, the better and easier it becomes to do so, explained Christiane Bergevin, president, SNC-Lavalin Capital Inc.

“With roads, we have track records to work with but with hospitals right now, it is hard to do,” noted Bergevin.

Productive and continuous dialogue is very important when it comes down to who should assume what risk, said Tim Stanley, senior vice-president, MMM Group Limited, Vancouver. Also, it is during this dialogue that the best opportunities for innovation occur.

Bird agreed with Stanley’s assertion and said that open dialogue on the Canada Line project went beyond mere just questions and answers via email.

The open exchanges helped in the efficiency of delivering that project, she said.

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