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26| RISK "IN THE PUBLICPRIVATE PARTNERSHIP (P3) MODEL, WHAT HAS DEVELOPED IS A DISCIPLINED VIEW OF RISKS AND THE CREATION OF RISK MATRICES AND LISTS OF THE TYPE OF RISKS YOU WOULD EXPECT ON CONSTRUCTION PROJECTS. BUT LONG BEFORE THE ADVENT OF P3s, COST AND SCHEDULE WERE THE RISKS THAT OWNERS WORRIED ABOUT." the necessary permits, the right intellectual property and technology. In the traditional approach, government is responsible for providing the project's funding. The builder usually negotiates a fixed-price or lump-sum contract, but the contract allows for changes or "variations" dictated by events over which the builder had no control. "The fixed price was a fiction because the final cost of the project ended up being much more," says Martin. As a rough rule of thumb, says Ian Houston, a partner at Borden Ladner Gervais LLP, these variations typically add 10 per cent to the final price. In a traditional project, the designer and the builder may be separate entities. The designer has to design a structure that not only meets the needs of the government, but is also functional and constructible. The designer bears the risk of falling short on any of those counts. Often, the builder will discover conflicts within the design document before they even break ground. The electrical and mechanical drawings, usually done by different people, may show different devices occupying the same space. That design risk falls on the designer. The builder, meanwhile, assumes the risks of failing to conform to the specifications and plans provided by the government. "All of the construction methods are the builder's choice and are therefore his risk," says Houston. "If I decide to erect the structural steel for your building in a particular sequence and it doesn't work, those risks are mine. If I have to re-do it, if I have to start over, if the methodology requires a type of crane that's not available, those are all my risks as the builder." In a P3 model, however, the allocation of risk is very different, albeit specific to the particular project. "The mantra that has developed is that you're trying to allocate risk to the party that is best able to control and mitigate that risk, and therefore to price that risk," says Martin. "You don't want defects in the project, so it makes sense to transfer the risk for quality to the party that has the most control over quality — the contractor." But some risks external to the project, whether so-called "relief events" (such as a hurricane) or force majeure (such as terrorism, a nuclear plant disaster or an earthquake) are beyond the control of the parties. For such eventualities, it's desirable that the risk be allocated to the party best able to price that risk. Against certain risks, it's possible to buy insurance, so that should be done by the party that can obtain it at the best price. "From a lawyer's perspective," says Carol Pennycook, a partner at Davies Ward Phillips & Vineberg LLP, "you really need to sit down with your client and ask who is best positioned to manage the risk. And when it's determined who's going to assume that risk, A c o n M Lexpert®Ranked Lawyers Massicotte, Etienne Osler, Hoskin & Harcourt LLP (514) 904-5778 emassicotte@osler.com Mr. Massicotte's financial services practice embraces project infrastructure. His experience includes acting for the syndicates for the financing of the CHUSJ and proposed financings of a new Montréal acoustic hall and hospital research centre. ROB-Infrastructure.indd 26 McElman, CM, QC, Frederick C. Stewart McKelvey (506) 444-8979 fmcelman@ stewartmckelvey.com Mr. McElman has extensive experience in commercial, litigation and administrative law. His clients include government and quasi-government bodies, professional associations, boards, engineering and construction firms, and business buyers and sellers. McFadden, QC, David J. McGarva, Bernie McKenzie, Maria K. McLellan, Bradley N. Merri Gowling Lafleur Henderson LLP (416) 369-7243 david.mcfadden@ gowlings.com Aird & Berlis LLP (416) 865-7765 bmcgarva@ airdberlis.com Farris, Vaughan, Wills & Murphy LLP (604) 661-9319 mmckenzie@farris.com WeirFoulds LLP (416) 947-5017 bmclellan@ weirfoulds.com Blake Grayd (604) jeff.m Mr. McGarva, who appears at all levels of court including the SCC, practises commercial and construction litigation, including securities litigation, tax appeals and shareholders' rights disputes. He is also a mediator and arbitrator. Ms. McKenzie advises the public and private sectors on P3s and other infrastructure and construction projects. She also advises on financing for lenders and borrowers, commercial property transactions and reorganizations. Mr. McLellan acts for clients in the planning and development of various infrastructure projects. He has provided project structuring and property acquisition advice to York Region in its award-winning VIVA rapid transit project since 2002. Mr. M busin financ emph real e and d and A projec includ pensi privat Mr. McFadden's corporate governance and financing practice embraces the infrastructure, energy and financial services sectors. His infrastructure experience includes toll highways, tunnels, energy projects and health care facilities. 13-08-06 10:21 AM

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