Risk Allocation Framework in Public Private Partnership Projects: An analysis of Norwegian context

Abstract

For many years, public sector has collaborated with private sector under Public Private Partnership scheme in order to implement big high-risk projects to improve infrastructures or increase public service level. Despite all the advantages, risk management becomes more demanding in a partnership since the relationship between two parties can itself create some risks apart from the risks attributed to the nature of the projects. Inappropriate risk allocation can potentially lead to inefficiency in project cost or even failure of the project. Thus, the amount of transferred risk to the private party is a crucial decision to be made. There are many factors, either external or internal to the project, which determine the optimal allocation of risks. Therefore, optimal risk sharing might vary from one context to another and even from project to project. There are many studies in the literature which have analysed different countries in order to reveal the optimal risk allocation scheme in different context. However, there are fewer studies which consider the factors which determine the preferred risk allocation. Analysing different contexts would help researchers construct more profound frameworks to evaluate optimal risk allocation for different contexts. Having a better understanding of preferred risk allocation might help practitioners to save time and money in the negotiation process before contractual agreement as well as to reach the highest value of money in the whole project implementation phase. In this thesis, we develop a framework containing determinant factors of risk allocation in Public Private Partnership. Based on the developed framework and collected data from Norwegian context, we explain how risks are allocated between public and private sector in Norway and what the reasons are for having such an allocation in Norway.