CP3P Project Structuring & Risk Allocation 2

Question 1

In an availability-payment PPP for a hospital, which party typically bears demand (usage) risk?

Accepted Answer

The public authority

Answer

Availability payments are made when the asset meets performance standards no matter how much it is used, so the public authority keeps demand risk.

Question 2

How does an SPV usually pass construction cost and schedule risk down to its builder?

Accepted Answer

Through a fixed-price, date-certain turnkey EPC contract

Answer

A fixed-price, date-certain EPC contract passes cost overrun and delay risk from the SPV to the contractor on a back-to-back basis.

Question 3

Which principle best describes good risk allocation in a PPP?

Accepted Answer

Allocate each risk to the party best able to manage it at the lowest cost

Answer

Optimal allocation puts each risk with the party best able to control or absorb it at the lowest cost, which maximizes value for money.

Question 4

What is the main purpose of a direct agreement between the contracting authority and the project lenders?

Accepted Answer

To give lenders step-in rights and cure periods before the authority can terminate

Answer

Direct agreements let lenders receive notice of default, cure problems, and step in or substitute the concessionaire to protect their security.

Question 5

Under a typical PPP contract, what does a 'relief event' give the private partner?

Accepted Answer

Extra time to perform and protection from termination, but no financial compensation

Answer

Relief events protect the contractor from default and termination and give extra time, but the contractor still bears the financial cost.

CP3P - Public-Private Partnership Certification Practice Test