I am sure that, just like me, you are sick of hearing this. . . “Risk is best allocated to the party best placed to manage and mitigate it”, only to read the proposed contract and to find that the statement is more rhetoric than reality. Rather, risk is often allocated to build a negotiation 'high ground' and is frequently parked with the wrong party.
Risk is rarely allocated to the party best placed to manage it - it is allocated to win the negotiation.
How often have we seen this when it comes to the Public/Private interface on large Infrastructure projects, with government often being accused of pushing as much risk as possible onto the Private sector? From there it becomes an uphill battle for the Private sector to re-allocate this to government, often with the threat of a 'marked-up' or 'departed' contract document being negatively evaluated and impacting their chances of winning the tender.
It can become a farcical bit of theatre with the Private sector playing the part of compliance, whilst pricing as much risk into their bid as possible, knowing that they need to get into the 'preferred tenderer' position during the procurement process, before being able to flex their negotiating muscles in seeking to re-allocate certain risk. All the while with government trying to concede as little as possible and to lock the contract departures down as early as possible. This whilst trying desperately to conclude the procurement, often within a compressed politically-inspired timeline and to come out with an affordable price that bears some resemblance to the business case.
Whilst this isn't always the case, and certain jurisdictions have instigated approaches to curb the prevalence of this, such as the NSW Government's 10-Point Plan, one can't help but wonder how things might look if an equitable and realistic risk allocation was adopted from the start? It sounds easy, doesn't it, but this balanced approach is also highly dependent on the form of procurement or contract adopted. Hence, the repeated preference for a partnership-style collaborative contracting approach and the continual search for the 'Holy Grail” of collaborative-style contract, rather than the use of the traditional 'hard-nosed' and 'hard dollar' adversarial-style contract types.
We already have the Alliance-style contract form and the PPP/PFI-model, not to mention the Development/Delivery Partner approach made popular by the London Olympics. Each has its own shortcomings and drawbacks, and their successful implementation is often project-specific. What is inescapable is that there are two fundamental parties engaged in any large-scale public infrastructure project – the Public Sector and the Private Sector and a contract form is needed that accommodates their distinctly different drivers, all the while binding them into a contractual relationship that might stretch for decades.
The Private sector is usually a willing partner driven by profit and return to shareholders…the Government is also usually a willing partner driven by the outcome and wider benefit to the public derived from its budget spend. What we are looking for is a contract form that gets the Public-sector to behave more like a Private-sector company and vice versa. No small task, but certainly achievable, especially when you think of some government's demonstrated potential to act more commercially and to generate a return on investment rather than just budget spend. Contrast this with the Private-sector's obligation to live up to its Environmental, Social and Governance (ESG) responsibilities – certainly a value-add driver to encourage it to be more Government-like in ensuring a great outcome for the populace, and you have a glimmer of collaborative hope.
With this in mind, and taking the lessons learned from the PPP model, how about we look to formulate a new model…the 4P procurement model™…Public Participation Private Partnership, where Government takes a significant stake in the ultimate consortium, potentially through a commercialised proxy, whilst remaining the ultimate Client. There have been several examples of where this style of approach has been used overseas. The NHS LIFT and the Building Schools for the Future (BSF) programmes of the 2000's in the UK adopted a similar approach to good effect using Partnerships UK in creating Partnerships for Health (now CHP) and Partnerships for Schools as commercial vehicles and Public sector shareholders. This together with a standardised contract (yes, there can be such a thing) made the concept workable.
Admittedly it is hard to get around the somewhat duplicitous role government has to play, being both Client and Consortium member, but with a little motivation and the willingness to be bold, a new form of collaborative contracting can be developed to effectively deal with the risk apportionment battle once and for all. Certainly, an initiative worth collective sponsorship by government and the private sector. How about it?