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P3 Toolkit

Analytical Tools

P3-VALUE: Risk Assessment Tool User Manual

December 30, 2013

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Appendix A: Glossary

Term Description
Commissioning phase The commissioning phase, often referred to as the 'Start-Up' phase, is where the asset is prepared for operations. This phase often involves the testing and integration of the project's systems and components to ensure that all applicable design criteria are met.
Construction phase The construction phase involves the actual construction of the physical asset. This phase is often the most sensitive to risks which could result in change orders, schedule delays, and contract disputes. By identifying potential risks before the construction phase, it may be possible for the project team to better anticipate and manage construction risks before they occur.
Contingency An allowance included in the estimated cost of a project to cover unforeseen circumstances.
Concessionaire Private entity that assumes ownership and/or operations of a given public asset (e.g., train station, bus operation) under the terms of a contract with the public sector
Cost impact Cost impact is the additional cost of labor, equipment and materials that are incurred when the risk event occurs and whoever is responsible for that risk has to carry out additional work as a direct result of the event. Indirect costs, such as the cost of site offices, utilities and additional resources for engineers, inspectors, etc. are not included in the cost impact.
Design phase The design phase, often referred to as a 'pre-construction' phase, involves the development of detailed construction documents and logistics plans, issuance of permits, and development of detailed cost and schedule estimates. During this phase, the public sector can solicit proposals or bids from qualified contractors and vendors to execute the work based on the detailed design and or operations criteria. Depending on the delivery method, the bid solicitations may take place early or late in the design phase. For example, under P3 or Design-Build, solicitations can take place early or possibly even before the design phase while under traditional Design-Bid-Build bid solicitations are unlikely to be issued until a complete set of construction documents is finalized towards the end of the design phase.
Discount rate The discount rate is a percentage by which a cash flow element in the future (i.e., project costs and revenues) is reduced for each year that cash flow is expected to occur.
Impact phase A project's life cycle typically consists of multiple phases, from inception to contract close-out. Typical phases for a highway project include planning, design, construction, commissioning, turn-over, and operations. When managing risks and conducting risk assessments, it is important to understand the project's exposure to risk over each project phase. By allocating risks across the project phases, it is possible for project teams to view the risk profile of the project over its entire life cycle. The example risks provided in the Risk Tool are assigned to specific phases, and a breakdown by phase of the total risk exposure is presented in the 'Output' tab. While some risks may carry over into multiple phases, the Risk Tool allows each risk to be allocated to only one specific phase called the 'impact phase' (i.e. the phase in which the exposure to the risk is greatest). If possible, the risk in such situations can be broken down into individual portions and then assigned to a specific impact phase.
Operations phase During the operations phase, the completed asset is operated and maintained to ensure continuation of beneficial use and/or revenue generation over the life of the asset.
Opportunity risks A risk may be categorized as an opportunity risk if it has the potential to have a positive impact on the project. Opportunity risks are intrinsic to the project. If an agency quantifies risks differently for different procurement structures, the potential for double-counting efficiencies that are provided through the risk allocation for a procurement structure (as part of the VfM Analysis process) can exist.
Non-technical risk Risks posed by political, regulatory, economic, and social conditions, or stakeholders.
NPV Net present value.
Planning phase Planning is the earliest phase of the project in which the project is purely conceptual with relatively low design definition, and very rough high-level estimates of the cost and schedule. Tasks in this phase typically consist of financial and technical feasibility studies, development of rough budget and schedule estimates, public forums if applicable, and an assessment of existing assets for a replacement or renewal project.
Primer Within the context of the Risk Assessment Tool User Manual, "Primer" refers to the FHWA's Primer on Risk Assessment for Public-Private Partnerships, which provides of an overview of general/basic concepts of the risk assessment process.
Procurement phase Stage at which a pool of bidders is down-selected based on specific criteria.
Project brief The project brief details the government's objectives, service delivery requirements, policy and commercial matters, material background information and the processes for submitting and evaluating submissions. It also sets out government's role and intentions for the infrastructure to be built, and explains how checks and balances are observed in the process to help to ensure impartiality.
PSC Public Sector Comparator: A PSC represents the most efficient public procurement cost (including all capital and operating costs and share of overheads) after adjustments for competitive neutrality, retained risk and transferable risk to achieve the required service delivery outcomes. This benchmark is used as the baseline for assessing the potential value for money of private party bids in projects.
Retained risk The value of those risks or parts of a risk that a government proposes to bear under a P3 arrangement.
RFP Request for Proposals.
Risk allocation The process of assigning operational and financial responsibility for specific risks to parties involved in the provision of services under a P3. Also see risk transfer.
Risk Allocation Matrix A table used as a management tool throughout the procurement process to provide an overview of the major risk categories to be considered when developing procurement, to explain why the risks are transferred, shared, or retained under different procurement options. As each deal will have project-specific risk, the Risk Allocation Matrix is only a tool to help understand the principles regarding risk allocation. For each project, the actual risk allocation will need to consider the principles of allocation and the circumstances of the deal.
Risk Register A document which identifies the bearer of a particular risk and which will also contain quantitative assessments (i.e. costs and likelihoods) of the characteristics of the risks).
Risk transfer The process of moving the responsibility for the financial consequences of a risk from the public to the private sector.
Schedule impact Schedule impact is the delay that an event may cause to the project schedule.
Technical risk Risks arising from deviations from the project's original technical assumptions, specifications, or requirements.
Transferrable risk The value of any risk that is transferable to the bidder.
Turnover phase Turn-over is a relatively short phase that occurs after successful commissioning of the project. During this phase, documents such as warranties, license information, and operations and maintenance (O&M) manuals are turned over to the operations team. Additionally, all open financial, legal, regulatory, and technical items are closed to ensure successful commencement of beneficial use and revenue generation.
Value for Money (VfM) The procurement of a P3 project represents VfM when, relative to a public sector procurement option, it delivers the optimum combination of net life cycle costs and quality that will meet the project objectives.


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