CP3P Core Concepts and Principles 2 — Questions and Answers
Question 1: Which feature most clearly distinguishes a PPP from traditional public procurement?
- The private partner is paid in a single lump sum on completion
- Significant risk and management responsibility are transferred to the private partner over a long-term contract (Correct answer)
- The government owns no assets at any stage
- Design is always completed by the public sector before tender
Correct answer: Significant risk and management responsibility are transferred to the private partner over a long-term contract
PPPs are long-term contracts in which the private party bears significant risk and management responsibility, with payment linked to performance.
Question 2: In an availability-payment PPP, the private partner is paid mainly based on:
- The number of users of the facility
- Toll revenue collected from users
- Making the asset available to the required performance standards (Correct answer)
- The construction cost actually incurred
Correct answer: Making the asset available to the required performance standards
Availability payments are made by government when the asset meets defined availability and performance standards, with deductions for failures.
Question 3: Under a user-pays (concession) PPP model, which risk is typically borne mainly by the private partner?
- Demand (traffic/revenue) risk (Correct answer)
- Change-in-law risk of a discriminatory nature
- Political force majeure
- Land acquisition risk
Correct answer: Demand (traffic/revenue) risk
In user-pays concessions, the private partner's revenues depend on usage, so it bears demand risk.
Question 4: What is the guiding principle for allocating risk in a PPP?
- Transfer as much risk as possible to the private partner
- Keep all risk with the public sector to reduce pricing
- Split every risk 50/50 between the parties
- Allocate each risk to the party best able to manage it at least cost (Correct answer)
Correct answer: Allocate each risk to the party best able to manage it at least cost
Optimal risk allocation assigns each risk to the party best able to control or absorb it, which maximizes value for money.
Question 5: Why is a PPP contract usually based on output specifications rather than input specifications?
- Output specifications make the contract shorter
- They let the private partner innovate in how it meets required service levels (Correct answer)
- Input specifications are illegal in PPPs
- Output specifications eliminate the need for monitoring
Correct answer: They let the private partner innovate in how it meets required service levels
Specifying outputs (what must be achieved) rather than inputs (how) gives the private partner freedom to innovate and optimize whole-life cost.
Question 6: A Special Purpose Vehicle (SPV) in a PPP primarily serves to:
- Act as the government's procurement agency
- Hold the public sector's equity in the project
- Ring-fence the project's assets, contracts, and liabilities from the sponsors' other businesses (Correct answer)
- Provide sovereign guarantees to lenders
Correct answer: Ring-fence the project's assets, contracts, and liabilities from the sponsors' other businesses
The SPV is a project company that isolates project assets and cash flows, enabling limited-recourse project finance.
Question 7: Which statement best describes 'bundling' in a PPP?
- Combining several unrelated projects into one tender to save time
- Combining design, construction, finance, and operation/maintenance into a single contract (Correct answer)
- Grouping multiple lenders into a syndicate
- Merging two government agencies to oversee a project
Correct answer: Combining design, construction, finance, and operation/maintenance into a single contract
Bundling lifecycle phases under one party creates incentives to optimize whole-life costs and quality.
