Appendix 3: Our review of the initial allocation of risk under the proposed contract (February 2001)
Inquiry into the Mangawhai community wastewater scheme.
| Risk | Risk Allocation | Comment | |
|---|---|---|---|
| Council | Promoter | ||
| 1. Planning – Construction, Consents and Rulings | |||
| a. Tax – these are the tax benefits to the Promoter in owning the infrastructure – for example, depreciation. | ✔ | This allocation is appropriate. | |
| b. Planning – this is the planning of the various tasks in the project | ✔ | There might be some tasks where the risk has been allocated to Council. Transferring entire planning of these to the Promoter will result in additional cost in the tenders to cover this risk. | |
| c. Consents – these are all the statutory consents required under legislation administered by Kaipara District Council, Northland Regional Council, and any other government agency as required. | ✔ | This risk is better managed by Council. Obtaining consents is highly uncertain and transferring this to the Promoter will result in significant costs in the tenders to cover this risk. | |
| 2. Design and construction risk | |||
| a. Specification and capacity of facilities – this covers the drafting of specifications for construction and the confirming the scheme capacity to meet the demands now and into the future. | ✔ | This is appropriate, provided the Council has given certainty on the scheme capacity and demand requirements. | |
| b. Design and construction of facilities – this covers the design and construction of facilities to meet the capacity requirements outlined in 2(a). | ✔ | This is appropriate, provided the Council has given certainty on the scheme capacity and demand requirements. | |
| c. Construction cost overruns – |
The allocation of risk cost overruns to those that cause them is appropriate. The allocation of "force majeure" risk to the Promoter will result in increased costs, particularly the insurance cover. Depending on the Promoter's risk profile with insurers, it is suggested that this risk would better being allocated to Council. | ||
| i. Caused by Kaipara District Council | ✔ | ✔ | |
| ii. Caused by contractor | ✔ | ||
| iii. Force majeure | |||
| d. Construction timing | ✔ | This allocation is appropriate. | |
| e. Industrial relations | ✔ | This allocation is appropriate. | |
| f. Continuation of services during construction | ✔ | This allocation is appropriate. | |
| g. Load and volumes | ✔ | This allocation is appropriate. | |
| 3. Commissioning, Operating & Maintenance Risk | |||
| a. Commissioning new plants | ✔ | This allocation is appropriate. | |
| b. Operation of plants | ✔ | This allocation is appropriate. | |
| c. Service performance | ✔ | This allocation is appropriate. | |
| d. Illegal discharges and connections |
This allocation is appropriate. | ||
| i. Identification | ✔ | ||
| ii. Pursuit of legal remedies/damages | ✔ | ||
| e. Outflow characteristics and achievement of estuary standards | ✔ | This allocation is appropriate. | |
| 4. Occupational safety and health | ✔ | Health and safety cannot entirely be delegated to the Promoter. Council has the statutory obligation to ensure H&S is implemented on all its work. This must be a risk shared by both parties. | |
| 5. Commercial terms | |||
| a. Proponents' bid costs | ✔ | This allocation is appropriate. | |
| b. Inflation/foreign exchange and/or interest movements | ✔ | This allocation is not appropriate. Transferring the uncertainty of this to the Promoter will cost the Council. Managing the risk of this uncertainty would be better managed by the Council. | |
| c. Insurance | ✔ | This allocation is appropriate. | |
| d. Taxation | ✔ | This allocation is appropriate. | |
| e. Finance availability/structure | ✔ | This allocation is appropriate. | |
| f. Provision of security | ✔ | This allocation is not appropriate. Transferring the uncertainty of obtaining security to the Promoter will cost the Council. Managing the risk of this uncertainty would be better managed by the Council. | |
| g. Assignment/novation | ✔ | This allocation is not appropriate. Transferring the assignment and/or novation of commercial terms to the Promoter will cost the Council. The Council needs to approve this. | |
| h. Corporate structure | ✔ | This allocation is appropriate. | |
| i. Changes in law | ✔ | This allocation is not appropriate. Transferring the uncertainty of changes in law to the Promoter will cost the Council. Managing the risk of this uncertainty would be better managed by Council. | |
| j. Transfer of facilities on completion |
This allocation needs to be shared. It is in Council's interest that all the facilities are transferred in quality condition, functioning, and fit for purpose. | ||
| i. Asset condition | ✔ | ||
| ii. Residual value | ✔ | ||
| 6. Regulatory Issues | |||
| a. Obtain and retain consents | ✔ | This risk of obtaining consents is better managed by Council. Transferring this risk to the Promoter will result in significant costs in the tenders to cover this risk. The risks with retaining consents should be shared as the Council still needs to ensure it is not compromised. | |
| b. Monitor NRC Rulings and meet increased licence standards | ✔ | This allocation is appropriate. | |
| c. Monitor and address changes in regulatory regime | ✔ | This risk would be better managed by Council. Any changes in the regulatory regime can then be implemented by Council rather than allocating this risk to the Promoter. The Promoter will add extra cost to cover the uncertainty with this risk allocation. | |
| 7. Site issues | |||
| a. Kaipara District Council sites | These are sites owned by Council so the risk allocation is entirely appropriate for all of these except for the Iwi agreement. Presumably, the Iwi agreement is with Council and therefore Council needs to manage this risk and have mechanisms in the contract to cover potential impacts on agreement. | ||
| i. Environment report | ✔ | ✔ | |
| ii. Site availability | ✔ | ||
| iii. Contamination | ✔ | ✔ | |
| iv. Archaeological/heritage | ✔ | ✔ | |
| v. Iwi agreement | ✔ | ||
| b. Other Sites | These sites are not owned by Council so therefore there is uncertainty as to availability. This risk should have remained with Council. The risks associated with the environment reports, any contamination, and the archaeological/heritage aspects contained some uncertainty and therefore should have at least been shared if not completely allocated to Council. Presumably, the Iwi Agreement is with Council and therefore Council needs to manage this risk and have mechanisms in the contract to cover potential impacts on agreement. | ||
| i. Environment report | ✔ | ||
| ii. Site availability | ✔ | ||
| iii. Contamination | ✔ | ||
| iv. Archaeological/heritage | ✔ | ||
| v. Iwi agreement | ✔ | ||
| Customer interface issues | |||
| c. Community liaison | ✔ | ✔ | This allocation is appropriate. |
| d. Manage customer interface including billing and accounts | ✔ | This allocation is appropriate. | |
| e. Public health | ✔ | This allocation is appropriate. | |
| f. All other risks | ✔ | This is the "catch-all" for risks not identified. Given the uncertainty around this, it should have been allocated to Council or at least shared. Not appropriate that the Promoter carries the uncertainty for all risks not identified. This would definitely add more cost to the project. | |