Contractual approach to optimising risk sharing: A quantitative study of the multidimensional nature of risk in private provision of road infrastructure

Abstract

In 2009 and 2010, we conducted an international survey to identify the extent to which risk-sharing in tollroad projects procured under the public-private-partnership (PPP) method and the structures of PPP concession contracts lead to the value for money outcome. The survey was conducted using an advanced computer-aided personal instrument technique within which the stated choice methodology was deployed to capture the risk perceptions of contracting parties. Information drawn from the project experience of 101 respondents over 32 countries was used to test the impact of contractual conditions and external institutional variables on their risk preferences, and hence, their choice behaviour in relation to the PPP procurement. The empirical findings affirmed a number of significant relationships that involve the risk preferences of contracting parties: choice of procurement method, contractual conditions, institutional environment, clarity of government’s strategic objectives, property rights, and the way in which risks are shared among contracting parties. We conclude that risk-sharing can be optimised through more equitable risk allocation, better handling of public misperception about the scheme and misperceived social risks associated with ownership transfer, undertaking reforms at the institutional level to make the environment more conducive to PPP investments, and selecting a reputable private partner for a sustainable partnership.