Risk Management in Transport PPP Projects
In the Islamic Countries
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5.3.5. Construction and asset delivery
Management of risks during design and construction
As mentioned above, project design documentation, including detailed technical specifications,
are elaborated by the contractors. Environmental Impact Assessment studies are also under the
responsibility of the private sector. Accordingly, technical design risks are retained by the
private party. The contractor is also responsible for works related defects and for the timely
construction of the project and the risks associated with its implementation according to the
foreseen schedule.
Box 22 Contract remuneration schemes: the Beira Railway Company Concession
In the 2012 World Bank Implementation Completion and Results Report No: ICR2154 of the
Companhia dos Caminhos de Ferro da Beira (Beira Railway Company), construction delays and
cost overruns are mentioned, which appear to be primarily associated to the inappropriate
supervision and negligence by the private contractor involved in the SPV. An Independent
Engineer was hired by the SPV to the purpose of supervising the implementation of the works.
Reporting by the independent engineer were regularly and appropriately elaborated, which were
apparently neglected by the private contractor leading the SPV. CFM was apparently excluded
from the management of the implementation of the project by the private partner and apart from
notifying the problems could not intervene in their solution in practice. Finally, the World Bank
appears also not to have adequately taken into consideration the outcomes of the reports by the
Independent Engineer, in their monitoring activities (WB, 2012).
Similarly to the comments made on the elaboration and verification of feasibility studies, the
supervision of the implementation of the works by more entities, including Independent
Engineers as well as the organization of periodic due diligences is an appropriate mitigation
measure of risks related to the timely implementation of the projects and early identification
and remediation of possible defects. Possible conflicts may indeed exist within SPVs and biases
in the monitoring and reporting activities by the different involved parties on the basis of
individual reporting sources may always occur, which could be avoided by means of
involvement of more independent reviews.
5.3.6. Operation
Management of risks during operation
The private party also retains full responsibility on the operation of the infrastructure and/or
delivery of the services.