Abstract
Public-private partnership (PPP) projects are often characterisedby increased complexity and uncertainty due to their idiosyncrasyin the management and delivery processes such as long-termlifecycle, incomplete contracting, and the multitude of stakeholders.An appropriate risk allocation is particularly crucial to achievingproject success. This paper focuses on the risk allocation in PPPprojects and argues that the transaction cost economics (TCE)theory can integrate the economics part, which is currently missing,into the risk management research. A TCE-based approach isproposed as a logical framework for allocating risks between publicand private sectors in PPP projects. A case study of the SouthernCross Station redevelopment project in Australia is presented toillustrate the approach. The allocation of important risks is putunder scrutiny. Lessons learnt are discussed and alternativemanagement approaches drawing on TCE theory are proposed.
Highlights
A massive demand for investment in infrastructure has been caused by rapid urbanisation in many countries (The World Bank, 2006)
Risk allocation in private partnership (PPP) projects is suitable to be viewed from a transaction cost economics (TCE) perspective because any issue that can be formulated as a contracting problem can be investigated to advantage in transaction cost economising terms (Williamson, 1985)
This paper presents a review of risk allocation in PPP projects and points out that previous research in risk management has been unsuccessful in understanding which kind of existing governance structures best suits a particular risk in terms of efficiency and why
Summary
A massive demand for investment in infrastructure has been caused by rapid urbanisation in many countries (The World Bank, 2006). A common perception that privatisation involves transfer of all risks to the private sector was prevalent in many countries until recently This has been found to have major limitations and many governments recognise that privatisation is a partnership in which they must retain some risk, whether in the form of financial subsidies or the assumption of contractual responsibilities or contingent liabilities, the principle of optimal risk allocation is often not followed in many PPP infrastructure projects (Faulkner, 2004; Thomas et al, 2003). Risk allocation in PPP projects is suitable to be viewed from a TCE perspective because any issue that can be formulated as a contracting problem can be investigated to advantage in transaction cost economising terms (Williamson, 1985). The following sections present the information gathered from above sources and provide detailed discussion and suggestion on the risk allocation issues involved in this social-economical-hybrid transport infrastructure PPP project
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