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Explained

A Project Explained
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Home > PFI/PPP > A Project Explained > Risks and Risk Mitigation

Risks and Risk Mitigation

PFI was designed as a means to transfer risk to the party best able to manage it. A well designed PFI project contract will represent a better way to share all types of risk - responsibilities are negotiated at contracting stage, assessed on a case by case basis and assigned appropriately to the parties involved, according to who is best able to manage the particular risk.

Risk	Risk Description	Usual Responsible Party
Initial design	Ability of that design to deliver the facilities requested by the client	SPC, passed to Building Contractors
Initial design	Incorrect specification of design by the client resulting in an inappropriate building or part thereof	The client (e.g. NHS Trust, Local Council)
Construction	Cost of delays, inability to deliver the design, quality of work	SPC, passed to Building Contractors
Service Provision (e.g. Catering, laundry, waste disposal, grounds maintenance, etc.)	Cost of non-performance, unexpected price increases	SPC, passed to FM service provider
Lifecycle (maintenance and upkeep of buildings, fixtures and fittings)	Unexpected costs, price increases	SPC, and/or passed to FM provider
Utilities	Price increases, unavailability	The client
Vandalism to property	Costs incurred for repair	Shared
Failure of a public service	Failure of front line services, e.g. shortage of nurses, teachers strike	The client

Risk is often shared in a contracted arrangement. For instance, the SPC may pay a fixed portion of increases in insurance, and the client pays any costs beyond this threshold.

It is typical that, for each aspect of the project, a risk register is produced and updated regularly to keep management focus on project issues. For instance, Laing SPCs produce a risk register to manage the risks to which it is exposed. The register catalogues the various risks, and assigns each one a number on the scale 1-3 of both the likelihood of their occurrence and the financial impact should they happen. The two numbers are multiplied to give the final rating, allowing the greatest risks to be highlighted and acted upon. Mitigation procedures are also recorded in the register, devised to reduce the overall risk rating and therefore make them less of a concern in the project.

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