Risk Management in Transport PPP Projects
In the Islamic Countries
80
Phase 6: End of contract
As explained in the conceptual framework, when discussing issues at the end of contract, an
obvious difference relates to issues relevant at the normal end of the concession term and those
relevant in early termination cases.
In the case of closure at contract expiry the key risk mitigation issues relate to the state of the
asset and its ability to continue the delivery of public interest transport services after expiry in
line with public policy objectives. The decision concerns the preferred solution for the public
sector, which could range from taking the asset back into the public domain or continuing the
concession, normally through re-tendering. It is quite possible that at this stage a portfolio
approach could be adopted, where expiring concessions with mature market and assets and a
good revenue-generating potential may be combined with current investment needs in the
transportation sector.36.
Box 14 Early Termination – Carillion37
The recent (2018) and relatively unexpected bankruptcy of one of the major PPP contractors in
the United Kingdom is an interesting illustration of a risk factor which often goes unmonitored
and may take the public stakeholder by surprise. In the end the public sector has managed to
react promptly to the failure and secure the continuation in the delivery of services of public
interest in the PPP operations affected by the event. This has implied the need to organize the
step-in of other contractors in the many operations affected, leading to additional costs for the
public sector in the region of GBP 258 million. The features of the event illustrate a case where
the event impacted on a number of PPP projects at different implementation stages in various
sectors. Carillion was highly dependent on revenues from PPP transactions, mostly based on
availability payments, a good proportion coming from the transport sector, which in 2016
accounted for about 30% of the GBP 1.7 billion company revenues. One of the operations
contributing an estimated loss of GBP 68 million was the Aberdeen Peripheral route, a DBFO
contract related to a new 58 km ring road and associated infrastructure. Causes of the losses were
due to a low bid price, unforeseen soil conditions and the need to deal with oil pipelines in
protected areas. Thus, the vulnerabilities in a case like Carillion built up and materialized over
time on a portfolio of projects and were in all probability connected with a reckless strategy of
the company aimed at winning contracts taking excessive risk on an aggregate basis. This is
naturally difficult to assess for the public stakeholder on a project by project basis, and the case
is an instructive example of a dimension – risk of contractor bankruptcy on multiple PPPs – that
should be better monitored.
As explained in the conceptual framework, early termination is normally unexpected, it may
happen also in early phases in the implementation cycle (e.g. during construction) and it is likely
to reflect various types of failures, ranging from default of the concessionaire to circumstances
36 This may include new investments in more advanced technologies (e.g. smart, green motorways in the road
sector) or capacity expansion.
37 Information in this Box is drawn from National Audit Office (2018) “Investigation into the government’s
handling of the collapse of Carillion”.