Risk is the Key to Procurement

Projects inherently have risks. Some are high stakes and some are minor, but worth analyzing.

Risk assessment for project procurement starts with a look at the “hows” of the project:

  • How will it be funded?
  • How will it get built?
  • How will it be operated?

What follows is a look at the “whos” involved with the project:

  • If the project is delayed, who’s responsible?
  • If the public pushes back, who’s responsible?
  • If it doesn’t work, who’s responsible?
  • If revenue is lower than the forecast, who’s responsible?

With these blanks filled in, toll agencies can develop a procurement model (see my previous blog post for a few examples) that best suits their needs. The two ends of the spectrum are straight design-build or publicly operating the road via a public-private partnership. The decision that must be made is whether to control the risk or shift the risk.

If you decide to control the risk, you have the power to make changes to mitigate it. This can include modifications to schedules and budgets, correspondence to stakeholders, public outreach, and system design and configuration.

The key benefits of shifting the risk is primarily to mitigate financial risk, which includes how to gain funding, how to pay off loans and what can be done with the revenue.

With the financial risk, however, government entities simply cannot gain the funding for a much-needed project. This steers agencies to seek private funding, which comes with the private firms operating and maintaining the road. From there, the procurement approach has been laid out for them. The good news is that revenue collection doesn’t necessarily fall into the private firm’s hands.

In the end, risk is key to procurement. Spending the time to look at it early can save a lot of time and resources ultimately.

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About the author

Michael Davis, PE, DBIA
Michael Davis, PE, DBIA
Mike serves as the Tolls Service Group Leader for RS&H and has more than 22 years of experience in the transportation industry, including 15 years dedicated to managed lanes and tolling. During his diverse career, he has helped manage the development of managed lanes systems throughout the United States, including Florida, Georgia, Virginia, and California.

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