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1.1.4 Design Risk

Broadly speaking, design risk may refer to the following two type of events.

  • Defects in the design that result in the asset being built, but failing to meet the prescribed standards, legal requirements, and any conditions imposed by environmental or other stipulations. Such circumstances mean that the project has to be changed, causing delays and above all cost increases.
  • Defects or failures in the design that result in the project not meeting the service standards requested in the contract, or that result in an increase in operation and maintenance (O&M) costs in order to meet the service requirements.
  • While the design in PPPs is commonly developed by the private party, it is the private party that should generally bear the design risk. The private partner usually reallocates this risk to the construction or Engineering, Procurement, Construction (EPC) contractor under a private Design and Build (D&B) contract.

    This risk, as a general risk related to the scope of the contact, may overlap with some other risks that affect the design and development phase of the project, some of which may provide relief and/or compensation to the private party if they occur.

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