Risk Management in PPP Projects: A Knowledge-Based Approach

This thesis report aims to develop a risk identification and management strategic system in PPP projects using a knowledge-based approach. The report involves the identification of risks from various works of literature followed by the proposed risk allocations and mitigation strategies. The focus is on infrastructure projects and the qualitative method of data collection and analysis is adopted.

RISK MANAGEMENT IN PPP PROJECTS
By
Your Name
Submitted in fulfillment of the requirements for the degree of
Master of Construction Management
Deakin University
Date
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DEAKIN UNIVERSITY
CANDIDATE DECLARATION
I certify that the thesis titled
Risk Management in PPP Projects
Submitted for the degree of
Master of Construction Management
is the result of my own work and that where reference is made to the work of others due
acknowledgment is given.
I also certify that any material in the thesis which has been accepted for a degree or diploma
by any university or institution is identified in the text.
Full Name:
Signed ..................................................................................……………….
Date......................................................................................……………….
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Acknowledgments
The preparation of this thesis is a demanding task that calls for maximum dedication and
cooperation from various significant people and institutions. Listing all of them might be
impossible. First and foremost I thank the Almighty God for having granted me the life and
energy to enable me to get to this far. May power and glory go back to Him who dwells
above. I would like to also thank my supervisor(s) who dedicated a lot of the quality time and
perseverance towards the preparation of this thesis proposal. I am equally humbled to thank
them sincerely for every positive immediate responses, guidance, and encouragement that has
seen me get to this level of this task this time. May I also thank the University as well for their
faithful commitment and moral support.
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ABSTRACT
The aim of this thesis report is to develop a risk identification and management strategic
system in PPP projects using a knowledge-based approach. The initial part of the report
involves the identification of the risk from the various works of literature followed by the
proposed risk allocations as well from the different works of literature which are compared
against each other. Besides, another very fundamental part of risk management which is risk
mitigation strategy is as well comprehensively discussed.
The focus of the risk management of PPP projects is not just on projects done in China as is
the case study but also on the management of risks that often occurs in PPP projects across
the world. The main focus of the PPP projects will be on the projects of infrastructure.
The qualitative method of data collection and analysis are adopted as the scientific method of
research.
Knowledge risk management is brought to attention in the discussion chapter where it is
added to risk management in PPP projects. The two main rational ways of dealing with risks
discussed in this report are the SECI model as well as PPP knowledge base. These models are
able to handle numerous risks as well as the knowledge gaps beside enhancing
communication and understanding among the various stakeholders. The conclusion section
provides a summary of the results and the discussion besides offers recommendations for
future research.
Keywords: PPP, risk, knowledge-based, mitigation, China
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TABLE OF CONTENTS
1 Contents
1 INTRODUCTION........................................................................................................1
1.1 Introduction.......................................................................................................1
1.2 Background........................................................................................................1
1.3 Problem Statement.............................................................................................2
1.4 Research Questions...........................................................................................2
1.5 Research aim and objectives.............................................................................3
1.6 Research Methodology......................................................................................3
1.7 Thesis structure..................................................................................................3
2 THEORETICAL FRAMEWORK...................................................................5
2.1 Background of Public-Private Partnership Project............................................5
2.2 Worldwide Context about Private Public Partnership Projects...................................7
2.2 Relevant Risks in PPP Projects.........................................................................8
2.2.1 Fiscal Risks: Contingent Liability and Fiscal Investment Risk.........................9
2.2.2 Fiscal Management or Fiscal Investment Risk................................................10
2.2.3 Residual Value Risk........................................................................................11
2.2.4 The Bidding Risk-Winner’s Curse or Opportunistic Renegotiation Risk.......12
2.2.5 Public Acceptance Risk...................................................................................14
2.2.6 Sustainability Risk...........................................................................................14
2.2.7 Foreign Exchange Risk....................................................................................15
3 RESEARCH METHODOLOGY...................................................................17
3.1 Introduction.....................................................................................................17
3.2 Research Method.............................................................................................17
3.3 Data collection.................................................................................................17
3.4 Data analysis....................................................................................................18
3.5 Summary..........................................................................................................18
4 FINDINGS.......................................................................................................19
4.1 Knowledge Management of PPP Projects.......................................................19
4.2 Types of Knowledge and Creation..................................................................19
4.3 Knowledge Management in PPPs...................................................................19
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4.4 Risk Management in PPP Projects..................................................................20
4.4.1 Risk Types in PPP Projects.............................................................................20
4.4.2 Managing Risks in PPP Projects.....................................................................21
4.5 Conceptual Framework to monitor the strategies governing PPP Projects.....22
Risk identification...........................................................................................................22
Risk analysis and assessment..........................................................................................23
Risk evaluation and assessment.......................................................................................23
Risk treatment..................................................................................................................23
4.5.2 Risk Mitigation................................................................................................25
4.6 Specific Risk in China PPP Projects...............................................................26
5 DISCUSSION..................................................................................................28
5.1 General Discussion..........................................................................................28
5.2 Risk Identification, Allocation and Mitigation................................................28
5.3 Using BIM in supporting risk Management in PPP Projects..........................30
5.4 Knowledge Risk Management of PPP projects...............................................31
6 CONCLUSION................................................................................................34
6.1 Contributions of the Research to Knowledge..................................................34
6.2 Research Limitations and Future work............................................................34
6.3 Recommendations for Further Research.........................................................35
7 REFERENCES................................................................................................36
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LIST OF TABLES
Table 1: Transportation PPP Projects worldwide ………………………………6
iii

LIST OF FIGURES
Figure 1: The PPPs Hub……………………………………………………..…………………6
Figure 2: Different Levels of Private Sector Engagement in PPP Projects................................7
Figure 3: Identification of Risks by type…………………………………………...………….9
Figure 4: Risks in the life cycle of PPP projects………………………………..
……22
Figure 5: Life Cycle Consideration in PPP Risks………………………….………………....24
Figure 6: Risk Allocation Model……………………………………………………………..25
Figure 7: Steps in PPP Project Implementation Process……………...………………………32
Figure 8: Risk Management Process in PPP Projects…………………..…………………….33
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LIST OF APPENDICES
Appendix 1: Transportation PPP Projects worldwide……………………………6
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1 INTRODUCTION
1.1 Introduction
This chapter aims at building the skeletal outline of the main question of research in this
study. The research question of this study is: what should be part of the risk management in
Public-Private Partnership projects and how should such be included.
The background of the study as well as an introduction to Public-Private Partnership will be
presented initially before they are followed by the purpose, research aim and objectives, a
brief introduction to Public-Private Partnership and then the limitations of this thesis report.
An outline of the later chapters will close the thesis chapter (Waring, Currie & Bishop, 2013).
The focus of this report will primarily be on the adoption of risk management in Public-
Private Partnership projects that are related to infrastructure. Public-Private Partnership
projects are those projects which adopt a Public-Private Partnership model in the full life
cycle of the project.
1.2 Background
For numerous years now, Public-Private Partnership model has been in use in the construction
sector. Just like any other initiative or model, Public-Private Partnership has two sides: the
merits and demits. Alongside the praise and applause for its benefits, the presence of
controversy and blame are as well vivid and real for its shortcomings (Sharma and Bindal,
2014, p. 1271). Owing to the acute financial crisis that was experienced in the year 2008, a
significant amount of interest has been on the verge of increase in carrying out Public-Private
Partnership projects in most of the countries around the globe.
Such a scenario is attributed to the inadequacy of funds as well as the realization of the
importance of the investments of the private enterprises by the various governments of
countries (Grimsey and Lewis, 2002, p. 110). The same situations are as well experience in
China, thereby prompting the Chinese government to actively engage in the encouragement of
the construction of Public-Private Partnership projects.
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As PPP projects have managed to attract more attention than ever, a consideration of the risk
management of PPP projects is worth being considered in order to eliminate doubts of
governments. As a result, it is of importance to conduct and analysis as well as control of the
risks of PPP projects and illustrates the chances of bringing them down. References will be
made to global scientific researches related to PPP or PPP projects in some of the nations or
all over the world followed by certain specific scenarios in the field of the construction
industry of China (Yeung, et al 2010, p. 940).
With the increase in the current clause ‘knowledge risk management,’ that illustrates the
interaction of risks management and knowledge management, the chances of a relationship
between risk management and knowledge management have been justified.
1.3 Problem Statement
The main purpose of this study is to examine the risk management in which the greatest
important duo parts are risk allocation and risk mitigation strategy of PPP projects (Perry &
Hayes, 1985 p. 500). In a bid to attain this objective, an elaborate search into the existing
works of literature will be conducted and the findings of that will be the return in the chapter
that discusses the findings. One more major purpose of the study is the knowledge risk
management of Public-Private Partnership projects that are to be discussed later in the
chapters.
Yet another cause of desire in the writing of this report borrows from the reports that there are
implementations at higher frequencies of more Public-Private Partnership projects in China,
offering an excellent opportunity to get to understand this model more elaborately by
performing this thesis.
1.4 Research Questions
The research questions of this thesis are:
 What should be part of the risk management in Public-Private Partnership projects?
 How should such parts be included?
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1.5 Research aim and objectives
The main aim of this thesis project is to develop a risk identification and management
strategic system in PPP projects using a knowledge-based approach. Risks are inherent in all
projects and they arise as a result of uncertain future outcomes which can have direct impacts
on the whole project (Perry & Hayes, 1985 p. 500). The risk allocation to the contract parties
and its management which hence cause a PPP design that establishes an element of the
business project.
This will be achieved through the research of the following objectives:
1. To analyze the major risks which occur both locally and internationally in the PPP
projects
2. To develop a knowledge-based approach in establishing the assessment of risks in PPP
projects
3. To develop a case study on PPP projects (Warner & Sullivan, 2017)
4. To develop a conceptual framework which will monitor the strategies that will govern
Public-Private Partnership in the construction industry
1.6 Research Methodology
In a bid to attained the aforementioned aims and objectives, the research, secondary data will
be adopted in conjunction with the literature review
1.7 Thesis structure
Chapter 1 Introduction provides an overview of the master among them the background, the
purpose of the report, research questions, research aims and objectives, research methodology
which describes the approach that will be used in attaining the aims and objectives of the
study.
Chapter 2 Literature Review provides a literature of the previous works on introduction to
PPP projects, worldwide context about PPP projects risks identification in PPP contracts and
3

the various types of risks associated with PPP projects and then closing with an illustration of
the gap in knowledge which are the various kinds of risks in PPP projects which result in the
obtaining of the research aim and objectives.
Chapter 3 Method generates the strategies that are demonstrated and adopted in the report
Chapter 4 Findings which encompasses an overview of the works of literature in which all
the outcomes from the philosophies are converged.
Chapter 5 Discussion offers insights and elaborate explanations of the findings that are
obtained in the preceding chapter as well as some individual or own thoughts
Chapter 6 Conclusion offers a summary of not just for the works of literature but as well as
the discussion chapter.
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2 LITERATURE REVIEW
2.1 Background of Public-Private Partnership Project
There has been an ever growing tendency of involvement of the private sector in the provision
of transport facilities of high standards aimed at attaining the needs of rapid economic growth.
For numerous years now, the public sector has remained to be the conventional financer and
operator of the infrastructure projects through the use of the resources collected from taxes as
well as other different levies including fuel taxes and charges on road users (Edwards and
Bowen, 1998, p. 340).
Nonetheless, the recent difference between the resource generation capacity and the demand
for various new facilities has promoted the governments to find new methods of funding and
sources. This has led to very many countries at the moment contemplating Public Private
Partnership as one of the arrangement made between the private and public sectors in a bid to
finance, operate, construct, design and maintain the public infrastructure, the community
facilities as well as associated services (Lee, 2001, p. 330).
In general terms, a Private Public Partnership could be defined as a long-term relationship that
exists between the private and the public sectors that has the purpose of generating public
services as well as infrastructure. The private-public partnership brings together the public
and the private sector together in long-term contracts. The private-public partnership is
composed of unconditional and voluntary agreements and understanding, agreements at
service levels and private and outsourcing finance initiatives (Carbonara, Costantino &
Pellegrino, 2014). Figure 1 below shows an illustration of the PPPs Hub.
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Figure 1: The PPPs Hub
A private-public partnership project thus often involves the offering of a conventional public
sector service and can be composed of an avalanche of options. The general idea behind the
concept is the mobilization to utilize the capital of the private sector in the generation of
various economic developments as well as the delivery of the value for money to the public
sector alongside the higher costs of financing in the private sector. The level of returns as
demanded by the investors in the private sector must be lower than the whole-life costs and
enhanced transfer of risks (Chen et al., 2013).
One of the main objectives of private-public partnership is the development of the various
infrastructure projects among them schools, hospitals as well as roads without necessarily
bringing on board the response to the limited nature of the capital that is usually available in
the public sector and making use of the superior cash and the capacity of project management
of the private sector.
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Figure 2: Different Levels of Private Sector Engagement in PPP Projects
2.2 Worldwide Context about Private Public Partnership Projects
Various types of PPP projects have been adopted in the development of infrastructure around
the world. The limitation in the availability of financial resources to the public sector that may
be used in financing the development of infrastructure has facilitated countries in Europe,
Africa, Asia, North, South, and Central America to adopt private investment as one of the
promising alternatives of realizing various economic developments. As from the records of
World Bank, to the tune of 662 transport projects were completed between 1990 and 2001
with private participation which attracted an investment to the tune of $135 billion. A
summary of some of the biggest PPP projects is as shown in table 1, which illustrates their
social features as well as the extent of involvement of the private sector.
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Table 1: Transportation PPP Projects worldwide
2.2 Relevant Risks in PPP Projects
Other than dangers which may strike any extend of foundation venture, various gatherings of
dangers will probably come up in a PPP venture. Such dangers are characterized as PPP-
particular. They originate from the specific connection between people in general and the
private substances the two of which have monetary interests that are unmistakably packaged
in the task:
• The parties have fluctuated targets to meet
• The government ordinarily keeps the lingering proprietorship even as the task of fund is
exchanged to a private area (Chou and Pramudawardhani, 2015)
• The parties have fluctuated prospects for the broadening of dangers.
In as much as the legally binding refinement passing by these bearings may not be clear in
genuine practice, it is still of the pith to endeavor an investigation of which of the hazard are
particularly connected with a PPP venture or generally tend to improve in a PPP structure
(Yang, Hou and Wang, 2013).
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Figure 3: Identification of Risks by type
There are three main groups of PPP-specific risks: fiscal risks, bidding risks and residual
value risks all of which are further split as discussed below:
2.2.1 Fiscal Risks: Contingent Liability and Fiscal Investment Risk
Open Private Partnership gives the legislature an instrument that is can use in mitigating the
monetary contracts identified with the change to the arrangement of street framework. The
private assets can henceforth be used in spanning the budgetary hole which happens in
various nations between the necessities of foundation and the current open assets (Chung and
Hensher, 2015). In any case, the complex idea of PPP ventures and the deficiency of the
benchmarks about their monetary bookkeeping and revealing make provisos that enable PPPs
to be embraced in the bypassing of open use control. The financial dangers are assembled into
two: unforeseen obligation related dangers and monetary venture dangers.
Contingent liability risk defines the variation in the fiscal expenditure initiated by future
uncertain events under the utilization of the guarantees of the government. It is often an
indirect risk and the fiscal variability is often being triggered by factors that are associated
with the project that has the guarantee extended (Cooper et al., 2014).
Under the framework of a PPP, the government has very simple justifications for relocating
public investment and knocking it off the budget as well as the elimination of the government
9

debt from the balance sheet despite still nearing the implicit or explicit fiscal risk that results
from ownership of the residual asset. Still, the partnership that is behind such an arrangement
is in a position to provide reasons for offering government guarantee in a simpler manner than
the conventional financing or complete contracting out (Cruz & Marques, 2013).
This thus means that a resort to the guarantees in a bid to secure private financing may lead to
exposure of the government to the hidden and mostly higher costs than the conventional
financing. Such contingent liabilities have the ability to complicate the budget management
and financial risks as a result of lack of transparency. In as much as such a risk may most
likely be higher especially in the developing nation which has more pervasive problems of
fiscal transparency and accounting, some developed countries as well have significant
concerns (De Schepper, Dooms & Haezendonck, 2014).
Attributable to the way that PPP contracts out in the open framework are transcendently
started by the administration, all the more particularly the BOT-type contracts, despite
everything they remain a financial strategy apparatus and affect the total interest. PPPs can
sophisticate monetary arrangement administration whether they have unexpected liabilities
dangers appended to them or not as a miniaturized scale adjustment device. For instance, in
light of the current situation of high total interest, inflationary weights, and high capital
inflows, changing the customary capital use to the private segment from people in general
segment and henceforth bringing down the spending shortage, may compound weight of
residential interest while producing the deceptive impression of adjustment in the monetary
arrangement. Residential interest weights may increment should the present use be substituted
in the financial plan for capital use (De Vries & Yehoue, 2013).
2.2.2 Fiscal Management or Fiscal Investment Risk
As illustrated by the recent experience by the U.S. with Chicago Skyway and Indiana Toll
Road, the concession of the road infrastructure may offer a large upfront funding to a
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government. Even in circumstances when the amounts of allocation of money are less
spectacular, the manner of allocation and expenditure of the money can invoke variability and
hence risk which may occur in the financial position of the concessionaire and the
government (DeCorla-Souza et al., 2013).
Extensive forthright installments extricated from the private accomplices towards the
legislature may have two primary effects on the evaluations of the administration's
obligations. As on a fundamental level, a pervasive effect, which stems for the cash time
esteem a dollar that has been gotten today is in all probability in excess of a dollar that would
be gotten tomorrow-, would offer an update of the financial position of the legislature and the
viewpoint of hazard. In any case, a need to relate the choices relating to ventures made today
with the long haul maintainability of transportation in the general population part (Delmon,
2017).
Should such a relation fail to be achieved, then such an arrangement is most likely to have
negative effects on the assessment of risk. An example is Fitch Ratings which has considered
choosing on high-up-front payment to be a risk on the fiscal position of the government and
as well to the project as it may the degree of flexibility of the government when it comes to
meeting its future needs of transportation (Chung & Hensher, 2015).
Nonetheless, Fitch has assessed the possible arrangements that produced the large up-front
payments should proceed to be invested in a manner that can be compared with the long-term
assets which offer lasting economic benefits. On the contrary, it will perceive in the negative
way the utilization of the proceeds meant for the short-term operating needs of the
government (Verweij, 2015). The financial dimensions of the project may be influenced by
the credit ratings of which have been allocated to the government debt as well as to the project
under circumstances of refinancing and thus impacting on the general risk of the project
(Demirag, 2017).
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2.2.3 Residual Value Risk
This is a risk that is related to the market prices of the future of an asset and is often
categorical to the leasing or concession contracts where the infrastructure assets are given
back to the government after a long time of operation by the private sector. As per the
justification by fittings, toll road projects are unfamiliar owing to the growth of their
economic value with time hence allowing an increase in the stability of the credit for as long
as they have been in operation (Effah Ameyaw & Chan, 2013).
Along these lines, as time passes by, acknowledge solidness is too being found in the weaker
undertakings including those that have been blamed previously. Leftover esteem hazard is
related with the idea of the installment for the concession that has been examined above
(Wang, 2015). Installment the concession charges in a continuous way, as opposed to making
the installments in a forthright single amount may prompt a greater amount of an expansion in
the estimation of a developing venture (Effah Ameyaw & Chan, 2013).
2.2.4 The Bidding Risk-Winner’s Curse or Opportunistic Renegotiation Risk
This hazard results from the assessment of the bidder of alternate dangers that are related with
the venture. There are two gatherings of offering dangers that are separated: astute conduct
and victor's revile (Torchia, Calabrò & Morner, 2015). Usually difficult to build up the
refinement in genuine practice as it could prompt generally as a mix of the two rusks.
Regardless, in hypothetical practice, the basic factors behind such unsafe circumstances are
frequently extraordinary and the hazard is also prone to be borne by different gatherings
(Engel, Fischer & Galetovic, 2013). In this manner, chance originating from the champ's
revile much of the time must be borne by the private area which is the bidder for the situation
where there have not been consequent arrangements. The astute conduct chance, then again,
has been activated by the private segment could host to be taken care of by the two gatherings
despite the fact that it is much of the time borne by the administration (Tsamboulas, Verma &
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Moraiti, 2013).
2.2.4.1 The risk of opportunistic behavior
The danger of pioneering conduct has shaped a principal part of the Williamson's investigate
of the bartering impacts of Demsetz. Demsetz reasons that an ex-stake focused closeout for
the privilege to run an imposing business model under an establishment may prompt a
comparative outcome as a standard rivalry in a market. The methodology through which such
a result may happen is the welcome of offers at the unit cost for the items under syndication
and after that having the most minimal offered get the honor (Gatti, 2013). Should
organizations take part in an aggressive conduct, the champ would end up being the best and
productive organization which makes offers at its normal expense and consequently procuring
no imposing business model lease practically speaking?
The test on sharp conduct was attacked by Williamson completely on contract deficiency and
additionally the many-sided quality of an organization (Tikhomirov et al., 2016). He proposed
that a compressive investigation of the diversifying (concession) structure features the
difficulties by and by because of vulnerability for the future, expenses of exchanges and
additionally deviated data that are accessible between the gatherings in the agreement:
• In as much as these dangers may happen in any affiliation that includes a focused offering,
higher occurrences are probably going to be felt openly private association ventures gave
(Greve and Hodge, 2013)
• The venture frequently incorporates a complex hazard sharing and institutional course of
action, which according to Williamson's scrutinize would make it less demanding to start
event of different dangers by the private accomplice in asking for a transaction (Siemiatycki,
2015).
• The resources proprietorship is still with the legislature and thus the enthusiasm for the
venture is still with it or bears on the most reduced end a lingering hazard, in opposition to the
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privatization of the advantage (Gurgun and Touran, 2013).
The association of the private accomplice in the task is regularly more and the general
population private organization outline includes a greater stake in contrast with the customary
financing.
2.2.4.2 The Winner’s Curse
This is a risk that often comes up in a competitive bidding especially in cases where a private
firm provides a much better offer in comparison with any other competitor, following its
evaluation of the project (Sarmento & Renneboog, 2016). It may be due to lack of enough
experience of the bidder, high confidence in the potential of the project or even poor risk
management. Therefore the winner may finally end up being paid more than the worth of the
projector in any case higher than if he had made bids more conservatively (Huxham &
Vangen, 2013). The winner’s curse is perceived to be more dangerous in cases of:
 A new project which is characterized by high levels of uncertainty
 Numerous bidders
 A new venture or no source of a competitive advantage
It is recommended that bidders who are not having any competitive advantage do more bids
conservatively especially in cases where they would expect numerous other bidders.
2.2.5 Public Acceptance Risk
This is a hazard that regularly comes up in a focused offering particularly in situations where
a private firm gives a greatly improved offer in correlation with some other contender,
following its assessment of the undertaking (Sarmento and Renneboog, 2016). It might be
because of absence of enough experience of the bidder, high trust in the capability of the task
or even poor hazard administration. Along these lines the champ may at long last wind up
being paid more than the value of the projector regardless higher than if he had made offers
all the more moderately (Huxham and Vangen, 2013). The victor's revile is seen to be more
14

unsafe in instances of:
• A new undertaking which is described by abnormal amounts of vulnerability
• Numerous bidders
• A new pursuit or no wellspring of an upper hand
It is suggested that bidders who are not having any upper hand accomplish more offers
moderately particularly in situations where they would expect various different bidders.
(Hwang, Zhao & Gay, 2013).
2.2.6 Sustainability Risk
This risk arises from the question as to whether the project would be able to proceed to its full
length as stipulated to be its terms owing to the possible changes in the preferences of the
citizens or chances of the services becoming outdated (Roehrich, Lewis & George, 2014). An
example of such could be a recreational facility that could be faced with the challenge of a
smaller use as a result of the development of new types of sports, recreation, and
entertainment. The result may be a shutdown in the earlier public-private partnership projects,
contrary to the longer contract term. Under such circumstances, the government may incur
additional cost so as to compensate the private party (Iossa & Martimort, 2015).
2.2.7 Foreign Exchange Risk
This encompasses a change in the value of the domestic currency in comparison with the
major currencies of the world, for example, the U.S. dollar or euro (Plummer, 2013). Such a
risk comes into existence when the public-private partnership project parties may need to
purchase some materials, services or equipment from other countries during the term of the
project.
Since the materials and services were planned in a national currency, there could be a change
in the value of the national currency at the time of making purchases hence prompting the
buyer to pay more for such equipment and materials should there be depreciation in the value
15

of the national currency (Ismail & Azzahra, 2014). This would translate to high costs of
public-private partnership projects.
In some other cases, the buyers may be forced to pay less should there be an appreciation in
the value of the national currency which would translate to saving of costs for the public-
private partnership project. More of the than not, this type of risk is more relevant to the
transitional countries among them Kazakhstan and Russia since their economies and
currencies are often very unstable as compared with those of the industrialized countries
(Ismail, 2013).
Despite the widely recognized and known benefits that come with Private Public Partnership,
global experiences have illustrated that there can be server issues affecting the successful
implementation of such partnerships which may in one way or another derail or even
completely paralyze their success (Osei-Kyei & Chan, 2015). It has been suggested that an
elaborately structured Private Public Partnership is able to efficiency attain better results as
opposed to the initiatives of the public sector. Claims are often made that the private sector,
owing to its elaborate technical, managerial and commercial skills, is able to carry out some
tasks in a more efficient manner that the government hence providing enormous benefits to
the public.
Despite the avowed benefits, recent global experiences of Private Public Partnership programs
have illustrated that there are numerous risks of different levels which need to effectively
manage in order to reap from the partnership (Nisar, 2013). While most of these risks seem
not be given the attention they deserve, their impacts on the success of the Private Public
Partnership projects go hand in hand with the success of such a project. This paper thus seeks
to address the various ways in which the different types and levels of risks can be managed in
Private Public Partnership projects, using a China-based project as a case study to aid in
offering in-depth explorations. The paper intends to offer contributions to the risk
16

management discussion regarding Private Public Partnership with a narrowing down into the
China context (Ng, Wong & Wong, 2013).
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3 RESEARCH METHODOLOGY
3.1 Introduction
This chapter explains the research methodology that was used to undertake your research. It
explains how you collected your data, the reason for the choice of the method, how the data
was analyzed.
3.2 Research Method
The research method used for this research was case studies and the use of secondary sources
of data through the conduction of literature on the chosen topic. Case studies of PPP projects
in China were used as they offered an opportunity of more realistic and solid learning and
understanding of the working of PPP projects in the contemporary society (Tang, et al, 2010,
p. 689). The various risks that are encountered in PPP projects in China were documented and
the adopted risk management strategies discussed at length which formed the basis of
recommendations for future work. The literature review provided insights into the existing
knowledge in the literature regarding risk management in PPP projects hence were used as the
basis of establishing the knowledge gap that called for the research (Akintoye et al, 2008, p.
17).
3.3 Data collection
Data collection was done through the selection of the most relevant literature on risk
management in PPP projects (Tang et al, 2010, p. 690). The pieces of literature were extracted
from peer-reviewed sources such as Google Scholar to ensure the validity and accuracy of the
data collected. The case studies involving conducting visits to some of the projects classified
as PPP projects in China with the aim of understanding the various risks that such projects
experience and the risk management strategies as outlined by the management of such
projects (Perry, and Hayes, 1985 p. 500). More insights were gained through interviews with
the various stakeholders of the different projects.
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3.4 Data analysis
The data was analyzed by making a comparison between the various works of literature as
explored by the different authors. Their suggestions and recommendations are used as the
basis for coming up with the conclusion on the different types of risks and the management
strategies. Comparison between the different suggestions by various authors offers the basis
of establishing the thoughts by a majority of the authors which played a role in establishing
grounds for justification and validity (Edwards and Bowen, 1998, p. 340).
3.5 Summary
Case studies and literature review were used as the main research methods owing to the nature
of the research which called for a qualitative approach in the analysis. Case studies provided
the basis of bringing PPP projects into real life practice and hence the challenges being close
to a reality. The literature reviews aided in collecting the views of various authors on the topic
and enabling the making of a comparison. The data collected in this chapter are presented as
the findings in the proceeding chapter which are then further discussed in the discussion
chapter.
19

4 FINDINGS
4.1 Knowledge Management of PPP Projects
Knowledge management refers to an activity through which knowledge in a firm may be
identified, integrated, controlled and exerted so as to explore and establish new knowledge
4.2 Types of Knowledge and Creation
Explicit understanding and tacit understanding: Tacit knowledge is pegged on the
background of an individual and thus not easy to communicate or share while explicit
knowledge tends to be more objective and easy to preserve as well as share (Wang and Yuan,
2011, p. 2011).
The SECI model: This is used in the illustration of the interchange between explicit
knowledge and tactic knowledge and basically results in the recreation of new knowledge.
The SECI model has four main parts: Socialization, Externalization, Combination, and
Internalization (SECI). Socialization defines the stage on the transfer of knowledge to tacit
from another tacit and often takes place in face to face teaching or training (Loosemore &
Cheung, 2015).
Externalization defines the process of transmission knowledge to explicit from tacit and can
be achieved through writing a book which offers a personal experience (Warner, 2013)
The combination is the integration of knowledge into a system, for example, AutoCAD,
SketchUp, and Revit through the transformation of the knowledge from explicit to explicit.
Internalization defines the process of gaining tacit knowledge by an individual through the
use of explicit knowledge (Ameyaw & Chan, 2015). This is usually purported as learning by
doing.
4.3 Knowledge Management in PPPs
A PPP project has two primary knowledge gaps; lack of ways of getting knowledge and the
variations of various types of knowledge from both the private and the public sectors (Liu &
20

Wilkinson, 2014).
Through the use of knowledge management, more specifically the SECI-model, better
communication can be achieved among stakeholders. Setting up a PPP knowledge base
through collecting the knowledge and information from the available stuff is such a wonderful
thing that would aid ease of supervision by the public sector and an understanding of the
achievements and performance that are attained by the private sector (Ameyaw & Chan,
2015). Besides, information regarding a project should be collected in a PPP knowledge base
to enable persons from the two sectors to have a proper awareness of the tasks that are on-
going. Two main approaches are usable in the spread of an idea from the PPP knowledge
base: hard copy and soft copy Liu, Love, Davis, Smith & Regan, 2014). The enrichment of
the whole knowledge base can be achieved through a transformation of the tacit and explicit
knowledge (Babatunde et al., 2015).
Owing to the fact that risk management is an expanding domain that brings together risk
management and knowledge management and going by the fact that there do not exist any
works of literature on this new area regarding PPP project, it forms the bulk of discussion in
the discussion chapter (Lipper et al., 2014).
4.4 Risk Management in PPP Projects
Risk management is defined is a game plan kind involving the discovery, analysis, estimation,
moderation, and monitoring of the risks that are involved with a project in a bid to formulate
actions aimed at managing and handling them effectively (Barlow, Roehrich & Wright,
2013).
4.4.1 Risk Types in PPP Projects
There are adverse types of risk among them
 Risks resulting from politics
 Risks resulting from finances
21

 Risks due to operations
 Risks resulting from construction
 Legal and contractual risks (Kunreuther, 2015)
 Risks resulting from the geological structure of the geological composition
 Risks to the environment
 Security risks among other risk types
4.4.2 Managing Risks in PPP Projects
Risks in PPP projects should be borne by both the private and public sectors (Khmel & Zhao,
2016). At the initial stages in which a contract is signed between the public sector and the
concessionaire, it should be noted that there should be identification and allocation of risks in
each phase, should there be unbalanced duties and contention in the final phases (Busch &
Givens, 2013). Nonetheless, in as much as the possible risks are identified in the initial
contract agreement, chances of some unexpected or otherwise unknown risks may take place,
a case that is true in case of sudden alterations that are closely associated with the project for
example legal changes or changes in the relationship between the sectors involved in the
agreement.
22

Figure 4: Risks in the life cycle of PPP projects
4.5 Conceptual Framework to monitor the strategies governing PPP Projects
From the perception of Kloosterman (2016), there is a 5-step process that has provided ideal
for carrying out risks management. The steps include risk identification, assessment, ranking,
control, and tracing.
Risk identification: This is the initial and foremost step and involves the identification and
23

assortment of some of the risk which may have effects on a PPP project (Ke, Wang & Chan,
2013). The first step of this process involves the identification of the most common risks in
the whole life cycle of the PPP project through coming up with a literature review. This will
be carried out in the early stages of the PP project for obvious reasons that only upon
identification of the risk will the stakeholders be able to take the necessary actions towards
mitigating the risk (Wojewnik-Filipkowska & Trojanowski, 2013).
Risk analysis and assessment: The risks and analyzed and of them, an assessment is made
before they can be ranked. This makes up the second phase of any merit risk management via
which the arguments for the provided risks need to be taken into consideration as well as the
possible aftermath should the risks become a reality (Cabral & Silva, 2013).
Risk evaluation and assessment: Upon establishing the possible impacts of failure to manage
risks, an evaluation and ranking of the risks are done as the third step of the 5-step process.
Risk treatment: This is a duo divided phase encompassing risk allocation strategy and risk
mitigation
4.5.1.1 RISK MITIGATION
Risk mitigation tends to be one of the core portions in PPP projects and is composed of four
main parts: risks to be negotiated, the risk to be shared, risks to be allocated to the private
sector and risks to be allocated to be public sector (Yang, Hou & Wang, 2013).
According to Ke et al., 2010, demand risk, environmental pollution risk, inflation risk, interest
rate risk, political disagreement risk should be shared between the partners while the risks of
acquiring land and compensations, risks associated with not getting the project and risk of
changes in legislation should be borne by the public sector (Joseph, 2013). The private sector,
on the other hand, should bear such risks is project quality risk, revenue risk, contract default
risk, time delay risk, budget overspent risk, high financial costs risks and risks of low residual
value (Carbonara, Costantino & Pellegrino, 2014). Among the risks that need to be shared by
24

the sectors include environmental pollution risk, risks of demand, inflation risk, risks of
changes in the exchange rate, interest rate changes risk as well as political disagreement risk.
Figure 5: Life Cycle Consideration in PPP Risks
Lam et al., (2007) on the other hand suggests that risks of inflation changes, changes in law,
risks of interest rate changes, risks of bad weather, site risk, risk of low residual value and risk
of force majeure need to be shared between the public and private sectors while such risks as
risk of third party approval, contractual risk and government instability risk are to be allocated
to the public sector even as risks of changes in design, quality risks, risks of subcontractor
default, material risk and risk of overspent operation cost and construction beside risk of high
financial costs are to be distributed to the private sector (Carbonara, Costantino & Pellegrino,
2014).
25

Figure 6: Risk Allocation Model
Li et al., (2005) proposes that the environmental risk, risk of changes in the interest rates,
risks of demand, risks of high financial costs, risk of inflation, risks of very late changes in the
design, risk of low residual value, risk of supplier default should be distributed to the private
sector even as the public sector is left with such risks as legislation change risk, political
disagreement risk, land acquisition, and compensation risk should be undertaken by the public
sector. Risks of force majeure and risks of changes in the legislation are best shared by both
the private and the public sectors (Jomo, Chowdhury, Sharma & Platz, 2016).
4.5.2 Risk Mitigation
Carbonara et al. (2015) propose that the medication should be provided to the private
company to take care of the risk of failing to acquire the project. There are about 5
suggestions of mitigation strategies that can be used in handling land acquisition and
compensation risk: setting up a flexible schedule, setting aside sufficient capital for accidents,
including any imaginable terms of acquisition and compensation at the early stages, including
the articles of termination as part of the contract so as to manage political disagreements
(Chen et al., 2013).
The public sector should commit to the private sector a rational interval of fluctuation in the
26

interest rates and assure compensation should it go beyond the interval so as to keep the risk
of changes in the interest rates in check (Ismail, 2013). The responsibility of reimbursement
of the external obligation extracted from the unusual changes in the exchange rates should be
taken by the government so as to keep in change the exchange rates change risk.
The government should offer a promise of compensation in a bid to mitigate the risk of
changes in the legislation (Chou & Pramudawardhani, 2015). A definition of the
responsibility of allocation of different design blemishes before time in a contract agreement
would aid in the tackling of the risks of design defect while the risk of time delay may be
mitigated by the construction company providing an assurance of completing the construction
within the provided time frame without which an amercement would be demanded from the
construction company (Yang, Hou & Wang, 2013).
The risks of the poor quality of the project may be handled by asking for margin money from
the contractor or the construction company. Risk of force majeure can be curbed through the
private company requesting for an insurance cover from the government while the risk of
supplier or contract default may be handled through the set of duties by the concessionaire for
them. An estimation of the cost of operation should be done prior to the schedule to avoid the
risk of operating costs overspend while receipt risk can be avoided if the government
prescribes a payoff interval (Chung & Hensher, 2015).
Mitigation of the risk of done can be achieved through the government assuring the
assumption of the debt left upon the completion of a project. Pre-investment risk mitigation
can be achieved through an elaborate analysis of the market before bidding can be made while
poor service quality risk can be avoided by the offering of performance bonus (Ismail &
Azzahra, 2014).
4.6 Specific Risk in China PPP Projects
In addition to the risks that are often found in the PPP projects worldwide, there are some
27

risks that feature in Chinese PPP projects as discussed. One of such is a corruption of bribery
risk which has remained to be an outstanding administrative problem that China is
experiencing (Chung & Hensher, 2015). This could be attributed to the fact that some of the
government placement may demand rewards or even rebates, of which such behaviors are
illegal. Another risk in Chinese PPP projects is a risk of meddling local government due to the
fact that at times the government engages in interventions of installations or services that are
to be offered by the private companies in a manner that is irrational (Chung & Hensher,
2015). The third risk in this category is the risk of trustworthiness and dependability of the
local government. The national government of the country is argued to be having very high
chances of going against the agreements of the contract especially after it has been signed.
The mentioned risks that are specific to Chinese PPP projects can best be deliberated upon by
assigning them primarily to the public sector that will take responsibility should they occur. It
can be established and noticed from the risks that they are all as a result of the conduct of the
local government or otherwise the holders of their offices. Other authors, on the other hand,
offer a suggestion that only the risk of dependability and trustworthiness should be left as a
responsibility of the public sector (Cooper et al., 2014). When it comes to mitigation
strategies of the risk, a suggestion is offered that the private sector is offered supervisory roles
over the behavior of the public sector and enhances the relationship with the public sector
while at the same time caution being given to the public sector to behave itself.
4.7 Summary
There are various types of risks in PPP projects illustrated by the risk allocation model.
Among the most important procedures in the process of risks management in any PPP project
are risk identification, risk allocation as well as risk mitigation. Numerous risks have been
identified in the initial stage.
There four main parts of the strategies of risk allocation: distribution of risks to the personal
sector, distribution of risks to the joint sector, negotiation of risks together as well as
28

distribution of risks jointly by the two sectors. An effective risk allocation method should be
considered when conducting risk allocation. Important to note when it comes to the allocation
of risk is that it ought to be done to the partner that has the managerial capability it in the most
efficient and cost-effective manner.
5 DISCUSSION
5.1 General Discussion
Upon the completion of the literature review, a conclusion can be made that for PPP projects
there exists an avalanche of researches related with risk identification, risk allocation as well
as risk mitigation, however, limited research has been conducted on risk ranking and
assessment (Iossa & Martimort, 2015). Still, it could be a problem either in coming across
effective investigations which are related to the limitations to risks or explore elaborate
research of linking knowledge management with risk management in PPP projects (Cooper et
al., 2014).
As it is obvious that BIM could be adopted on risk management, further investigation into the
same is done in this change. Since works of literature associated with the knowledge
management of PPP projects are relatively few, not forgetting to say that there are no works
of literature on knowledge management that are specific to PPP.
5.2 Risk Identification, Allocation, and Mitigation
With regard to risk identification, some of the risks among them interest rate changes risks,
environmental pollution risk, as well as risks of inflation, are not only found in a single phase
of the entire life cycle of a PPP project (Cruz & Marques, 2013). This can be attributed to the
writings and works of the various works of literature which outline those risks should be well
taken care of just in a single phase. The reports identify and discuss a number of risks aligned
to PP projects. The number of the risks may be declared to be more, enough or less when a
comparison is made against the specific project in question (Hwang, Zhao & Gay, 2013).
Each project is often accompanied by a background in numerous aspects which include
economic, political and social. There are no predefined rules in any project which instructs on
29

the risks that the project should be involved in and thus the risks discussed in this report are
either easily or probably incurred in PPP projects but not definitely (Huxham & Vangen,
2013).
Design Errors MEDIUM MEDIUM LOW MODERAT
E
LOW MEDIU
M
MEDIUM MODERAT
E
Lack of Proper
Communicatio
n
LOW MODERAT
E
MEDIU
M
MODERAT
E
MODERAT
E
LOW MODERAT
E
MEDIUM
Unproven
Engineering
techniques
VERY
HIGH
HIGH HIGH HIGH VERY
HIGH
VERY
HIGH
MEDIUM MEDIUM
Lack of
government
support
LOW MEDIUM MEDIU
M
LOW MEDIUM LOW MEDIUM MEDIUM
Operation cost
and time
overruns
LOW LOW MEDIU
M
MODERAT
E
MODERAT
E
HIGH MODERAT
E
HIGH
Market
demand
change
MODERAT
E
MEDIUM LOW MEDIUM MODERAT
E
MEDIU
M
MEDIUM MEDIUM
Financial Risk HIGH MEDIUM HIGH HIGH MEDIUM HIGH VERY
HIGH
HIGH
Residual Risk MEDIUM LOW MEDIU
M
MEDIUM MODERAT
E
LOW LOW LOW
Sponsor Risk LOW MEDIUM HIGH LOW MODERAT
E
MEDIU
M
LOW MEDIUM
Opportunistic
Renegotiation
Risk
MEDIUM MODERAT
E
HIGH MEDIUM MODERAT
E
MEDIU
M
MEDIUM MODERAT
E
Sustainability
Risk
MODERAT
E
MEDIUM LOW LOW MODERAT
E
MEDIU
M
MODERAT
E
MODERAT
E
Public
Acceptance
Risk
HIGH HIGH MEDIU
M
HIGH HIGH MEDIU
M
MEDIUM HIGH
Table 2: Risk Identification and Risk Criteria by Bing (2005)
A few observations can be made when it comes to risk allocation. One of such observations is
made in Table 1 that eliminates the chances of conflicts in the allocation of some risks yet
there are numerous variances in certain other allocations of risks. For this reason, a few
explanations can be made of Table 1 (De Schepper, Dooms & Haezendonck, 2014). One of
such is that all literature is pegged on various projects or researches and hence an
impossibility of forcing the various authors to concentrate on the same risks as well as
strategies of risk allocation. Another explanation is that chances are that the researchers could
be from a varied background as they do not come from the same geographic locations and
30

thus the differences in the suggested allocations (De Vries & Yehoue, 2013). A conclusion on
this can thus be made that it comes up with a conclusion on how to allocate a majority of the
risks is a bit of a challenge.
In as much as numerous risks may not be allocated with certainty, there exist some that have
exceptions for example risk on project quality, risk on time delay, budget overspent risk as
well as risks of overspends on operating costs all of which are risks that mainly rely on the
efficiency of work of the private sector (DeCorla-Souza et al., 2013). This leaves the private
sector with no option but to take care of such types of risks and hence should any of such
risks be incurred, the private sector is compelled to comply and make the required
compensation. With consideration to risk allocation, it is certain that risk should ever be
distributed to a sector which is in a position to effectively manage it in a manner treated to be
most proper and most cost-effective (Delmon, 2017).
A lot of the mitigation strategies can be found in works of literature which are different from
those works of literature that introduce risk allocation. This is attributed to the fact that a
significant number of the references give focus just to a single aspect.
Following the three risks identified in the case study conducted on the Chinese PPP projects,
it is not to conclude that these risks cannot be found in other countries. The point here is that
these risks may be more prone in the Chinese projects or even severer as compared to the
other countries (Chung & Hensher, 2015).
5.3 Using BIM in supporting risk Management in PPP Projects
BIM (Building Information Modelling) is considered one of the most important and strongest
tools for risk management. This makes it usable in PPP projects. Through the involvement of
BIM in a contract, such values as better completion, better cooperation as well as better work
efficiency are attained (Demirag, 2017). Furthermore, BIM can be integrated into the risk
allocation of PPP projects since the substance of BIM has the capability to outlines and
31

demands the allocation of different risks in a specific way. This offer an opportunity of
distribution of every thinkable risk to a particular sector at the early stage hence avoiding
situations of arises of risk where the responsibilities are not clear. This thus leads to the need
for a clear specification of risk in a contract with the aid of BIM. One of such examples is the
risks of design defect where the details of the information on the design of a project are
supposed to be included in a contact through the use of BIM (Effah Ameyaw & Chan, 2013).
5.4 Knowledge Risk Management of PPP projects
Knowledge risk management involves the adoption of tools of knowledge management
including the SECI model in the improvement of risk management. Knowledge management
often handles two problem domains: environmental uncertainty and cognitive constraints.
Knowledge risk management is carried out to bring to the awareness of the decision makers
the possible risks and thereby enact the measures early enough to mitigate risks (Engel,
Fischer & Galetovic, 2013). A number of steps are needed in the process of implementation
of PPP projects as shown in figure 7
32

Figure 7: Steps in PPP Project Implementation Process
Through the creation and sharing of knowledge, sustainability of healthy relationships and
cooperation between the two sectors is achieved enabling the settling of some of the risks as
well as a more efficient way of designing the project (Gurgun & Touran, 2013).
Exploitation of knowledge risk management may add significant value to the mitigation of
risks when it comes to risk management through the use of risk management tools. Some of
the risk management tools include the SECI model, knowledge mapping, the knowledge base
as well as communities of practice (Gatti, 2013). The report mainly delved into the SECI
model which makes use of four various methods for the creation of new knowledge. These
33

four knowledge creation ways are able to handle two knowledge gaps: contention of the
various types of knowledge regarding the private sector and public sector and unavailability
of ways of getting knowledge. Such knowledge gaps are able to lead to a great deal of risk
during a PPP project and hence the need to cope with them. Timely acquisition of the accurate
information by both sectors significantly contributed to the avoidance of such risks as the risk
of design, the risk of time, the risk of late changes in the design, risks of overrun in operating
costs among others (Greve & Hodge, 2013)
.
Figure 8: Risk Management Process in PPP Projects
5.5 Summary
Among the most important procedures in the process of risks management in any PPP project
are risk identification, risk allocation as well as risk mitigation. Numerous risks have been
identified in the initial stage.
There four main parts of the strategies of risk allocation: distribution of risks to the personal
sector, distribution of risks to the joint sector, negotiation of risks together as well as
distribution of risks jointly by the two sectors. Important to note when it comes to the
allocation of risk is that it ought to be done to the partner that has the managerial capability it
in the most efficient and cost-effective manner
34

6 CONCLUSION
6.1 Contributions of the Research to Knowledge
The adoption of knowledge management in PPP projects can aid in the achievement of
healthier relationships as well as communication between the various partners involved in a
PPP project. Among the most important procedures in the process of risks management in any
PPP project are risk identification, risk allocation as well as risk mitigation. Numerous risks
have been identified in the initial stage.
There four main parts of the strategies of risk allocation: distribution of risks to the personal
sector, distribution of risks to the joint sector, negotiation of risks together as well as
distribution of risks jointly by the two sectors. Important to note when it comes to the
allocation of risk is that it ought to be done to the partner that has the managerial capability it
in the most efficient and cost-effective manner. When it comes to risk mitigation strategy,
some of the probable solutions have been discussed at length in the preceding chapters.
6.2 Research Limitations and Future work
There were numerous limitations when it came to coming up with this thesis report including:
Lack of possibility of meditating upon all the situations and possibilities owing to the
limitation of the visions and knowledge of authors
Time constraints owing to the limited time for doing the research and thus a limited scope of
research
The possibility of examining each of the specific countries that have adopted PP model in the
report was almost non-existing
Inability to exploit all the potential risks since every literature is composed of various risks
and the selected ones were mainly those that are mentioned mostly
The strategies of risk mitigation provided are out of question to take into consideration all the
scenarios and offer all the probable solutions
35

6.3 Recommendations for Further Research
Through the works of literature that have been carried out, it is confirmed that there are
minimal researches that have been conducted on risk ranking and assessment especially of
PPP projects. It thus a recommendation that more studies are done on this are to enhance
investigations.
Still, further studies may attach more concentration on the association between the challenges
of PPP models and the risks associated with PPP models
As there are very few references on the stakeholder management aspect of PPP project, some
more research should as well concentrate on this area including the link between risk
management and stakeholder management of PPP projects.
Still, a research aimed at exploitation of BIM and its adoption in the risk management of PPP
projects would attract significant interest.
36

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APPENDICES
Appendix 1: Transportation PPP Projects worldwide
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