Risk Pricing Strategies for Public-Private Partnership Projects -- Copyright -- Contents -- Preface -- 1 Mapping of the PPP's processes and concepts -- 1.1 Introduction -- 1.2 Rationale for PPPs -- 1.2.1 Risk Transfer -- 1.2.2 Risk Sharing -- 1.2.3 Sharing Skills -- 1.2.4 Sharing Assets -- 1.2.5 Sharing Resources -- 1.2.6 Sharing Rewards -- 1.2.7 Sharing Responsibilities -- 1.2.8 Mutual Benefit -- 1.2.9 Achieving Value for Money -- 1.2.10 Pursuing Shared Objectives -- 1.2.11 Saving in Project Life-Cycle Costs -- 1.2.12 Business Model -- 1.3 Key Stages in the PPP Procurement Process -- 1.3.1 Strategic Analysis -- 1.3.2 Tendering -- 1.3.3 Contract Completion -- 1.3.4 Project Operation and Contract Management -- 1.4 Financing PPP Projects -- 1.4.1 Senior Debt Funding Principles -- 1.4.2 Junior Debt -- 1.4.3 Shareholders' Funds -- 1.4.4 Funding Concepts -- 1.5 Rationale for Value for Money and Risk Transfer in PPPs -- 1.5.1 Life-Cycle Costing -- 1.5.2 Output-Based vs. Input-Based Specification -- 1.5.3 Risk Transfer -- 1.5.4 Competition -- 1.5.5 Performance Measurement and Incentives -- 1.5.6 Private Sector Management Skills -- 1.6 PPP Project Structure -- 1.6.1 Procuring Authority -- 1.6.2 Special Purpose Vehicle ( SPV) -- 1.6.3 Equity Shareholders -- 1.6.4 Senior Funder -- 1.6.5 Construction Contractor -- 1.6.6 Operation and Maintenance Contractor -- 1.7 Payment Mechanisms in PPPs -- 1.7.1 Payment Principles -- 1.7.2 Payment Process -- 1.7.3 Benchmarking and Market Testing -- 1.8 PPP Emerging Issues -- 1.9 Summary -- References -- 2 Uncertainty in Pricing Risk -- 2.1 Introduction -- 2.2 Concepts of Risk and Uncertainty -- 2.2.1 Nature of Uncertainty -- 2.2.2 Location of Uncertainty -- 2.2.3 Source of Uncertainty -- 2.2.4 Level of Uncertainty -- 2.2.5 Risk Defined -- 2.3 Relationship between Risk and Uncertainty.

2.4 Attitudes to Risk and Uncertainty -- 2.5 Variability and Uncertainty -- 2.6 Quantifying Uncertainties in Risk Pricing -- 2.7 Taxonomies of Uncertainty -- 2.8 Pricing Risk under Uncertainty -- 2.9 Summary -- References -- 3 Bias in Risk Pricing -- 3.1 Introduction -- 3.2 Risk Bias Theories -- 3.2.1 Cognitive Theory of Risk Bias -- 3.2.2 Psychometric Theory of Risk Bias -- 3.2.3 Anthropological Theory of Risk Bias -- 3.3 Sources of Bias -- 3.3.1 Controllability -- 3.3.2 Availability -- 3.3.3 Anchoring -- 3.3.4 Confirmation -- 3.3.5 Cognitive Dissonance -- 3.3.6 Dread -- 3.3.7 Familiarity -- 3.3.8 Hindsight -- 3.3.9 Scale -- 3.3.10 Representativeness -- 3.3.11 Optimism -- 3.3.12 Venturesomeness -- 3.3.13 Self-efficacy -- 3.3.14 High Benefits -- 3.3.15 Group Biases -- 3.3.16 Estimating Probabilities Bias -- 3.3.17 Chain Processes -- 3.3.18 Scenario Bias -- 3.3.19 Halo Effect -- 3.3.20 Redundant Inputs -- 3.3.21 Framing -- 3.3.22 Immediate Emotions -- 3.3.23 Expected Emotions -- 3.3.24 Accountability -- 3.3.25 Appraisal Tendencies -- 3.3.26 Confidence Calibration -- 3.3.27 Consistency -- 3.4 Managing Bias -- 3.4.1 Encoding and Evaluating Risk Context Information -- 3.4.2 Generating and Estimating Risk Price Options -- 3.4.3 Evaluating Risk Pricing Decision Bias -- 3.4.4 Making a Risk Pricing Decision -- 3.5 Summary -- References -- 4 Management Strategies for Risk Pricing -- 4.1 Introduction -- 4.2 Principles of Risk Pricing Strategies -- 4.2.1 Understanding Project Material Risks -- 4.2.2 Understanding Material Impacts -- 4.2.3 Understanding Delay Consequences -- 4.2.4 Understanding Consequences -- 4.2.5 Risk Information Disclosure -- 4.2.6 Selecting Appropriate Measure Methods -- 4.2.7 Selecting an Appropriate Risk Exposure Strategy -- 4.3 Risk Pricing Management Strategies -- 4.3.1 Governance -- 4.3.2 Management.

4.3.3 Implement Risk Valuing Procedures -- 4.3.4 Monitor and Report on Risk Costing Outcomes -- 4.4 Value Gain and Loss from Risk Retention -- 4.5 Risk Retention Analysis -- 4.6 Resources Capability for Risk Control -- 4.7 Summary -- References -- 5 Framework for Pricing PPP Risks -- 5.1 Introduction -- 5.2 Framework for Pricing Construction Risks -- 5.2.1 Extracting Risk Information from Contracts and Project Documentation -- 5.2.2 Define Risk Statements -- 5.2.3 Risk Price Estimation Context -- 5.2.4 Appraisal of Risk Options -- 5.2.5 Selecting a Risk Price Option -- 5.2.6 Continuous Evaluation -- 5.3 Strategies for Risk Costing -- 5.3.2 Expected Value Method -- 5.4 Risk Pricing in PPP Transaction -- 5.4.2 Provider -- 5.4.3 Financier -- 5.5 The Choice of the Discount Rate in Risk Costing -- 5.6 Summary -- References -- 6 Risk Measurement and Modelling -- 6.1 Introduction -- 6.2 Quantifying Risks -- 6.2.1 Qualitative -- 6.2.2 Quantitative -- 6.3 Probability Distributions for Risk Costing Quantification -- 6.3.1 Continuous/Discrete -- 6.3.2 Bounded/Unbounded -- 6.3.3 Parametric/Non-Parametric -- 6.3.4 Triangular Distribution -- 6.3.5 Uniform Distribution -- 6.3.6 Normal Distribution -- 6.3.7 Beta Distribution -- 6.4 Risk Analysis Methods -- 6.4.1 Agent-Based Risk Modelling -- 6.4.2 Bayesian Networks -- 6.4.3 Network Theory -- 6.4.4 Artificial Intelligence Methods -- 6.5 Selecting a Risk Analysis Technique -- 6.6 How to Build a Risk Pricing BN Model -- 6.6.1 Define BN Objectives -- 6.6.2 Develop a BN Conceptual Model -- 6.6.3 Create the BN's Structure -- 6.6.4 Specify the BN's Variables -- 6.6.5 Quantify the BNs' Parameters -- 6.6.6 Evaluate the BN's Reliability -- 6.6.7 Test and Deploy -- 6.7 Building Risk Price Models using Monte Carlo Simulation -- 6.7.1 Selecting a Risk Pricing Model -- 6.7.2 Selecting Project Risk Variables.

6.7.3 Define Probability Distribution -- 6.7.4 Running a Simulation Experiment -- 6.7.5 Output Analysis -- 6.7.6 Interpretation of the Results -- 6.8 Summary -- References -- 7 Risk Allocation Networks in PPP Contracts -- 7.1 Introduction -- 7.2 Risk Systems in PPP Contracts -- 7.3 Modelling the Parameters of the Risk Allocation Network -- 7.4 The Structure of Risk Allocation Networks in PPP Contracts -- 7.5 Modelling the Structure of the Risk Allocation Network -- 7.6 The Characteristics of a Typical PPP Risk Allocation Network -- 7.6.2 General Characteristics -- 7.6.3 Network Density -- 7.6.4 Network Clustering Coefficient -- 7.6.5 Network Centrality Measures -- 7.6.6 Power Law -- 7.7 Key Observations -- 7.8 Summary -- References -- 8 Pricing Development and Construction Risks -- 8.1 Introduction -- 8.2 Overview of Development and Construction Risks -- 8.2.1 Network of Contracts -- 8.2.2 Categories of Risk -- 8.2.3 Sources of Design and Construction Risks -- 8.2.4 Ownership of Design and Construction Risks -- 8.3 Strategies for Mitigating and Managing Development and Construction Risks -- 8.3.1 Fixed Price Contract -- 8.3.2 Turnkey Contract -- 8.3.3 Cost Plus Fee Contract -- 8.3.4 Cost Plus Fee Contract with Maximum Price and Incentive Fee -- 8.3.5 Guarantee -- 8.3.6 Surety bond -- 8.3.7 Step-in -- 8.3.8 Experienced Contractors -- 8.3.9 Escrow Fund -- 8.3.10 Mapping Construction Risks to Mitigating Strategies -- 8.4 Pricing Development and Constructions Risks -- 8.4.1 Pricing Exogenous Construction Risks -- 8.4.2 Pricing Endogenous Construction Risks -- 8.5 Summary -- References -- 9 Pricing Operational Risks -- 9.1 Introduction -- 9.2 Overview of Operational Risks -- 9.2.1 Sources of Operation Risks -- 9.2.2 Contractual Risks -- 9.2.3 Contract Management Risks -- 9.2.4 Performance Risks -- 9.2.5 Commercial Risks -- 9.2.6 Compliance Risks.

9.2.7 Financial Risks -- 9.2.8 External Risks -- 9.2.9 Residual Risks -- 9.3 Strategies for Mitigating and Managing Operational Risks -- 9.3.1 Strategies for Managing Operation Risks -- 9.3.2 Mitigating Service Performance Risks -- 9.3.3 Mitigating Maintenance and Life-cycle Costs Risks -- 9.3.4 Mitigating Financial Risks -- 9.4 Pricing Operational Risks -- 9.5 Operational Risks Pricing Example -- 9.5.1 Single Risk Cost Estimate -- 9.5.2 Risk Cost Estimate at Project Level -- 9.6 Summary -- References -- 10 Financial Risk Assessment in PPP Projects -- 10.1 Introduction -- 10.2 Emergence of Risks in Project Finance -- 10.3 Risk Network Concepts -- 10.4 Project Finance Cash Flow Risk Network -- 10.4.2 Complex Risk -- 10.5 Assessment Results -- 10.5.1 Average Distance and Cluster Analysis -- 10.5.2 In- and Out-Degree Distributions -- 10.6 Summary -- 10.7 Acknowledgements -- References -- Index.