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Structuring and Drafting the Tender and Contract

55.5 Mitigation Measures (early mitigation by the authority)

Many risks can be mitigated through appropriate action by the procuring authority during the Screening, Appraisal, and Structuring Phases of the project. This can be done by optimizing the scope of the project, the planning process, and through robust investigations that provide information about risks (and thus reduce uncertainty).

Typical ways to mitigate risk through optimizing the scope of the project and the planning process include avoiding innovation and complexity if the benefit does not outweigh the cost, choosing a realistic delivery date, or planning crucial building activities during the summer so there is less risk of weather related delays (FHWA 2013).

Typical ways to mitigate risk through robust investigations include studies that enable the parties to better assess risks. Regardless of whether a risk will ultimately be taken back or left transferred to the private partner, the public partner is in the best position to do as much risk assessment as possible in advance. For example, this can be done during the Preparation and Appraisal Phase (and during structuring if needed) so as to produce relevant and meaningful information that should be provided to the private partner as the prospective bidder.

Examples of information essential to the risk assessment, which would allow the private partner to evaluate the risks and/or decide how to manage the risk event (including whether bid or not), are archaeological maps, geo-technical studies, traffic and revenue studies, utility allocation information, initial Environmental and Social Impact Assessment (ESIA), and so on.

In a number of contexts, this information (provided as reference information or “for information purposes”) may even be incorporated into the contract to create a baseline by which some risks will be allocated as they occur. For example, archaeological findings may be generally allocated to the private partner, with the exception of findings that are unforeseen by the archaeological study. Alternatively, a geo-technical study may provide the baseline of geo-technical conditions which will define whether an adverse condition that has materialized is materially different and therefore provides an entitlement to financial relief (compensation).

Other natural mitigating factors for both the retained risks and all risks in general concerns the selection process itself. This should ensure, as much as possible, the adequacy and capability of the successful bidder to develop and handle the project, as well as the level of reliability of its bid.

 

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