7  Calculating Transferred Risk

After identifying and valuing all material risks, each risk should be identified as either a Transferred or Retained Risk, depending on whether it should be transferred to the bidder, or retained by government under the contractual arrangements of the PPP.

Some risks may not be fully transferred to the private sector, or fully retained by government, but may be shared to varying degrees between the private sector and government. The extent of risk sharing will be dependent on the nature of the risk and party specific circumstances (and as such, allocated on an appropriate basis between transferred and retained).

The concept of transferring risk to the private sector implies that the risk initially lies with government. In this context, the concept of risk retained by government (Retained Risk) is also relevant to the construction of the PSC. However, in Risk Allocation and Standard Commercial Principles, the starting premise is that the private party assumes all associated project risk, except the risk that is expressly taken back by government.

These two approaches are not inconsistent. They merely reflect the use of different points of reference.