Typical PPP Risk Allocation
Risk Type Describe Allocation Mitigation
Technology Performance Existing technology unproven in terms of revenue service Private Vendors Warranties
Environmental Flaws or Delay

Lengthy studies

Permitting delays

Regulatory approval periods


Strong process management

Private Partner assistance

Market Revenues

Customer willingness to pay for level of service (LOS) unknown; affects interest rate and marketability for project-based revenues financing

Traffic and revenue below projections

Competing/alternative projects

Excessive capital maintenance

Insufficient revenues to fund ongoing O&M

Public and Private (funders/lenders)

Investment grade traffic and revenue studies accepted by rating agencies

Adequate debt coverage ratios

Adequate reserves

Credit enhancement, insurance

Toll adjustment flexibility

Careful budgeting processes and O&M controls

Non-compete protections

Completion Costs Cost and schedule overruns Private
(construction contractor) and Public

Use of fixed price/guaranteed maximum contract

Adequate contingency funds

Liquidated damages

Force major insurance

Design and construction management/over sight by Public Partners (which may be outsourced)

Financially viable Private Partners

Specialized surety products

Allowing Private Partners to undertake majority of design

O&M Costs

Excessive costs of operations

Excessive capital maintenance expenditures

Unpredictability of costs

Regulation of DUC rates and contractor ROR

Private (O&M contractor) and Public

Non-recourse financing

Minimum guarantees

Toll adjustment flexibility

Credit enhancement, insurance

Careful budgeting processes

Capital asset replacement assurances

Warranties, incentives, and penalties

Financially viable Private Partners

Use of private O&M contract

Use of fixed price/guaranteed maximum pricing, with escalations and adjustments over time

Policy/Political Constraints/ Support

Uncertainties regarding public policy and change in law

Regulatory uncertainties

Funding support

Public and Private

Persuasive and supported arguments for project

Early regulatory agency involvement

Public relations and citizen/policymaker education campaign

Community engagement and buy-in strategy

Phasing Timing and Resources Uncertainties regarding initial vs. subsequent phase economics Public and Private

Strong process management

Early regulatory agency involvement

Expedited and streamlined procurement process

Early and continuous contact with other states and local governments


Construction Defects

Day-to-day operational

Subcontractor claims


Public and Private



Well-thought out allocation of liability in contract based upon party best able to control and mitigate

Innovative insurance products