Assessing allocation

Hospital usage is a function of various factors including social policy and geographical location.  With regard to the demand for the physical assets, it is assumed for purposes of this example that NSW Health has requested that the Project Company design and construct the Hospital Facilities and refurbish a number of existing buildings, with predetermined capacity.  Any expansion in the Hospital Facilities will therefore be funded by the government, which suggests in the first instance that demand risk lies primarily with the government.

Notwithstanding this, it can be argued that there are elements of demand risk for the physical assets which the government is transferring to the private sector.  Increased usage may, for example, result in increased maintenance costs, moving forward of refurbishment costs, additional soft facilities management services (including cleaning and waste removal), additional security services, or additional help desk requirements.  These additional costs to meet increases in demand beyond that projected are assumed to be borne by the Project Company.

Whilst the hospital contract may provide for volume-related adjustments for other services (e.g. catering services, clinical waste) it is considered that in a project of this type, additional, or lesser costs to the private sector for additional, or lesser demand is marginal.  Therefore, the allocation of this risk between the government and the Project Company is assumed to be 90 per cent / 10 per cent respectively