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1.1.5 Construction Risk

Construction risk is the possibility that during the Construction Phase the actual project costs or construction time exceeds those projected.

The delay in the completion or commissioning will also represent a loss of income. This is assessed and categorized as a separate or ad hoc risk category in a number of manuals and guidelines, including this PPP Guide. (see below).

Broadly speaking, construction risks can be caused by defects or mistakes in design, a lack of appropriate planning, a lack of proper project and schedule management of the construction program, defects in the methods used, or other causes related to under-performance or even negligence by the private partner (or its contractors). This includes external factors that should have been anticipated, but were not.

This risk is generally borne by the private partner who will pass it through to the construction contractors. The construction risk at this point, from the perspective of the private partner, is the risk involved in the performance of the contractor, including not only the technical capacity and ability to meet the construction requirements on time and within budget, but also its financial standing. As in any sub-contract or contracts from the special purpose vehicle (SPV) to contractors, the SPV will remain the only entity responsible to the authority for those risks.

As in the case of design risks, this is a general risk related to the scope of the contact. As such, it may overlap with some other risk events that affect the design and development, with some of them providing relief or compensation.

 

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