INTERNATIONAL JOURNAL OF

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International Journal of Project Management 24 (2006) 587–594

PROJECTMANAGEMENT

Role of public private partnerships to manage risks in publicsector projects in Hong Kong

Li-Yin Shen a,*, Andrew Platten b, X.P. Deng c

a Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kongb Elevate East Lancashire, Accrington, England, UK

c School of Civil Engineering, South East University, PR China

Abstract

The clients of public sector works have an obligation to ensure that the large scale investment in public works is effective and canachieve improvement in social and economic performance. However, construction activity is usually subject to more risk than other busi-ness activities because of its complexity particularly in coordinating a wide range of disparate and interrelated skills and activities. Thiscomplexity is further compounded in implementing public sector projects where multiple project objectives are expected by a wide rangeof stakeholders who have different interests associated with the projects. With reference to current practice in Hong Kong, this paperexamines the major risks in implementing public sector works, and the ways that the application of public private partnership (PPP)can help to manage risks in project delivery. The example of Hong Kong Disneyland (KDLD) demonstrates how various major risksin committing to a PPP project are allocated and shared effectively between public and private partners. In this typical PPP project,it is found that allocation of site acquisition risk and legal and policy risks to the public sector is more effective while private sector couldeffectively allocate the design and construction risks, operation risks and industrial action risk to the private sector. Also, developmentrisks, market risks, financial risks and force majeure could be shared effectively between the two partners. These results present valuablelessons for both the practitioners and researchers in application of PPPs to manage risks in delivering of public sector projects in othercountries and regions.� 2006 Elsevier Ltd and IPMA. All rights reserved.

Keywords: Public private partnership; Public sector project; Risk management; Hong Kong

1. Introduction

Public sector project (PSP) is a generic reference which isapplied to a wide range of public works. PSPs usually rep-resent major part of construction works in any country orregion. According to the report of Hong Kong 2002 [1],the HK Government was to spend about HK$28 billionon capital works in 2002–2003, and maintain an averageannual capital works expenditure of about HK$29 billionin the coming years. Risk management therefore becomesan important mechanism to be adopted to ensure achieve-ment of the planned objectives in committing to these great

0263-7863/$30.00 � 2006 Elsevier Ltd and IPMA. All rights reserved.

doi:10.1016/j.ijproman.2006.07.006

* Corresponding author. Tel.: +852 2766 5805; fax: +852 2764 5131.E-mail address: bsshen@polyu.edu.hk (L.-Y. Shen).

investments. The public sector projects in Hong Kong arebroadly divided into two groups: (a) public housing projectsundertaken by the Housing Authority; (b) other public sec-tor works commissioned by the Government of the HongKong Special Administrative Region, the Airport Author-ity, the Kowloon–Canton Railway Corporation (KCRC),and the Mass Transit Railway Corporation (MTRC) [2].

Studies suggest that the tradition of cost and time over-runs, poor safety performance, poor quality and environ-mental performance in delivering PSPs remain to largeextent unchanged [3–5,2]. Flyvbjerg et al. [4] examined258 large transport infrastructure projects covering 20countries, and they found that cost overruns occurred inalmost 90% of the projects examined, with the highest costoverruns of 86% and 28% on average. According to the

588 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594

report of NAO [6], approximately 70% of the projectsfinanced by the central government experienced delays infinal completion in the UK, for example. Other conse-quences due to poor project performance include poorinvestment returns from the use of the project, delay inthe utilisation of the public facilities and extended inconve-nience for the public. All of these problems exert a hugefinancial pressure on government, and they can hold backor impair planned economic development.

To improve the efficiency of managing project risks, theHong Kong Government has been promoting the applica-tion of new procurement strategies for the implementationof public sector works, in particular, the mechanism ofpublic private partnerships (PPPs). PPP is an effectiveapproach to enhance project productivity by bringing inmanagement efficiency and creative skills from businesspractice, and reducing governmental involvement by usingprivate sectors in the provision of public services. PPP is adevelopment from the procurement strategy of BOT(Build, Operate and Transfer) and it is particularly suitablefor large scale infrastructure projects. BOT system has beenmainly promoted in developing economies where infra-structure works account for the majority of public invest-ment. This situation arises from the need to reduce thepublic sector budget contribution to infrastructure invest-ment and where efficiency gains from commercial practicescan be imported to the sector. In order to reduce publicborrowing to finance direct expenditure, the governmentsin developing countries have found private sources of pro-ject finance as an effective strategy to assist implementationof these projects [7]. The application of PPP has becomeincreasingly popular in developed economies for gainingthe advantage of improving efficiency and mitigating risks.The Hong Kong Efficiency Unit [8] opted that effectivenessof PPP is based on a partnership approach, where theresponsibility for the delivery of services is shared betweenthe public and private sectors, both of which bring in theircomplementary skills to the enterprise.

By referring to the practice in Hong Kong, this paperexamines the major risks in the implementation of publicsector works, and thereby the ways that the applicationof PPP can effectively manage risks in project delivery.Two constructive interviews with senior officials in the Effi-ciency Unit of the Hong Kong SAR Government were con-ducted for data collection and discussions. The discussionsover the two planned interviews generated valuable data

Table 1Categories in the PWP and expenditure in 2003–04 (Hong Kong)

Head 701 Head 702

PWP Land acquisition Port and airport developmentHKD (billion) 1.37 0.82

Head 707 Head 708

PWP New towns and urbanarea development

Capital subventions and majorsystems and Equipment

HKD (billion) 2.90 5.54

and understanding of the application of PPPs in HongKong public sector works. The Efficiency Unit is the officialdepartment for promoting the application of PPPs in HongKong [8]. A case study analysis on PPP project in HongKong was also conducted. The selected case study is a typ-ical PPP project in Hong Kong which constitutes the publicreal estates operated by private sectors. The analyses onthese data will result in valuable research findings to pres-ent lessons learned in application of PPPs to manage risk inpublic sector projects in other countries or regions. Thepaper is structured in the following manner. First, thepaper presents an investigation into the delivering of publicsector projects in Hong Kong, which will lead to an analy-sis of typical risks in public sector projects. Third, the roleof PPP to manage risks in public sector project is presentedin a framework based on insights from the above analysis.Forth, the framework is applied to conduct a case study ona PPP project in recreational sector in Hong Kong. Finally,conclusions and recommendations follow.

1.1. Delivering of public sector projects in Hong Kong

In Hong Kong, the construction funds for implementa-tion of public sector projects mainly come from govern-ment’s Capital Works Reserve Fund (CWRF), which wasestablished in 1982 by Resolution of the Legislative Coun-cil (LC) [9]. The income of CWRF is mainly derived fromthe land premium, which is used to finance public worksprogrammes (PWP) including public construction works[1]. The system known as the Capital Works Reserve FundResource Allocation System (CWRF-RAS) was introducedin 1987 to regulate the finance schedule for the planning ofcapital works expenditure on a five-year basis. WithinPWP, projects are grouped under various expenditureheadings, exampled with Table 1, which denotes the expen-diture under each heading over the period 2003–2004 [10].

The government is the largest client of the constructionindustry in Hong Kong. The total Public Expenditure in2001–2002 is HK$269.4 billion, of which the expenditureson housing and infrastructure were HK$32.1 billion andHK$24.9 billion respectively, assuming 21.9% of the totalexpenditure [11]. The ETWB (Environment, Transportand Works Bureau) is responsible for implementation ofall public projects except public housing which is managedby the Housing Authority. ETWB is the policy maker whois responsible for coordination of the project from the pro-

Head 703 Head 704 Head 705 Head 706

Buildings Drainage Civil engineering Highways9.14 2.18 3.72 5.06

Head 709 Head 7010 Head 7011

Waterworks Computerization Housing

1.09 1.12 1.52

L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594 589

posal stage to construction completion and establishmentof the policy and technical guidelines for expeditious imple-mentation of project programme. The scheduled construc-tion works will then be carried out by contractors selectedthrough tendering.

The ETWB consists of a number of departments includ-ing Architectural Services Department (ASD), Civil Engi-neering Department (CED), and Highways Department(HD). They are the main departments responsible forimplementation of public projects. The ETWB’s organisa-tional structure is shown in the following figures. Fig. 1shows the organisational structure of Architectural Ser-vices Department (ASD) of the ETWB.

Project management

branch

ArchitecturalDepartment

Project management

branch

Project management

branchm

Fig. 1. Organization str

Civil Engineering Office (CEO)

Special Dutie(SDO)

Land Development

Branch

Project Management

Branch Port

Branch

HonKonIslaBran

The Civil EngiDepartment

Fig. 2. Organization str

HighDepartm

Headquarters

3 Regional Offices (Hong Kong,

Kowloon &New Territory)

Fig. 3. Organization st

Fig. 2 indicates the organisational structure of the CivilEngineering Department (CED).

Similarly, Fig. 3 shows the organisational structure ofHighways Department (HD) of the ETWB.

ASD is responsible for the provision of professional andmanagement resources on all matters relating to publicbuildings (except public housing). It includes severalbranches assuming different roles as shown in Fig. 1 [12].Fig. 2 shows the organisational structure of CED [13],whose main mission is to provide services for slope safety,port development and land formation. And Fig. 3 presentsthe organisational structure of HD [14], which is responsi-ble for planning, designing, construction and maintenance

Services (ASD)

Project anagement branch

Project management

branch

Project management

branch

ucture of the ASD.

s Office

Geotechnical Engineering Office

(GEO)

g g

nd ch

Mainland Branch

Development Branch

Landslip Preventive Measures Branch

neering (CED)

ucture of the CED.

ways ent (HD)

Major Works Management

Office (MWMO)

Railway Development Office (RDO)

ructure of the HD.

590 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594

of the public road system. It is also responsible for plan-ning and facilitating the implementation of the railway net-works. The major duties of the three regional offices in HDare to implement capital works, perform administrationand undertake highway maintenance in the three adminis-trative regions. HD’s Major Works Management Office(MWMO) is responsible for implementation of large capi-tal works, involving the investigation, design and construc-tion of new roads, bridges and associated drainage works.Its Railway Development Office (RDO) coordinates theimplementation of railway developments. It is responsiblefor planning future railway expansion to support the con-tinued population growth and economic development ofthe Territory.

The other departments of ETWB include Drainage Ser-vices Department (DSD), Territory Development Depart-ment (TDD), Water Supplies Department (WSD), andElectrical & Mechanical Services Department (EMSD).DSD is mainly responsible for sewage, Drainage, and Har-bor Area Treatment projects [15]. TDD coordinates thevarious governmental departments and utility companiesand oversees the engineering design and constructionworks on land formation and infrastructure of the develop-ment areas including new towns, townships, and new majorurban development areas [16]. WSD is responsible forplanning and management of water resources and watersupply systems. Its activities include designing and con-structing waterworks projects, operating and maintainingof water supply and distribution systems, controlling thequality of water supply to customers, providing customerservices and enforcement of the Waterworks Ordinance[17]. EMSD plays an important role to deliver reliableand cost effective electrical, mechanical, electronic engi-neering and building services to government departmentsand public institutions, and provides an effective regulatoryframework to ensure the safety of the public in using elec-trical, mechanical and gas engineering facilities [18].

1.2. Examination of the typical risks in implementing public

sector projects

The process of delivering PSPs involves distribution ofresponsibility and authority across a broad range of partic-ipants. This process has been generally characterised by thereview of multiple objectives including quality perfor-mance, public satisfaction, financial return, environmentalperformance and safety performance. Baldry [19] identifieda number of features embodied in committing to publicsector projects, such as that the execution of the projectsis rarely intended as a mean to realise a pure financialreward or speculative gain; that project function is invari-ably to support an operational activity or to meet a serviceof benefit to a large body of consumers. Baldry [19] furtherstates that the risk impacts extend beyond straightforwardfinancial damage into operational disturbance, loss of ser-vice or amenity, user dissatisfaction, and disruption ofstrategic planning processes; and that success criteria are

many and varied. These features indicate that the multipleobjectives in implementing a public sector project areaffected by a wide range of risks that exist in differentdimensions and at different stages in project life cycle.Thus, the risk outcomes are beyond the scope of the pro-ject itself. These risks are typically grouped into variouscategories such as contractual, environmental, financial,economic, market, logistical, design, construction andoperational risks. The failure to manage these risks effec-tively may lead to serious consequences including poorquality, programming delays, budget over-runs, environ-mental pollution and prolonged contractual disputes.Therefore, efforts have been devoted to studies to investi-gate various methods for mitigating the impact arisingfrom these risks [20,19,21,22].

A number of studies have been undertaken worldwide toidentify the risks that affect the performance of public sec-tor projects for example, [23–34]. According to these stud-ies, risks affecting public sector projects can be groupedinto the following major categories:

� Project-related risks: These risks include cost and timeoverruns, poor contract management, contractual dis-putes, delays of tendering and selection procedures,poor communication between project parties.� Government-related risks: These risks consist of inade-

quate approved project budgets, delays in obtaining per-missions, changes in Government regulations and laws,lack of project controls, administrative interference.� Client-related risks: These risks include inadequate pro-

ject budgets, poor project brief, variations in projectspecifications, delays in the settlement of contractor’sclaims, lack of project control.� Design-related risks: These risks represent inadequate

soil investigation, delays in design, ambiguities andinconsistencies in design and design changes.� Contractor-related risks: These risks include inadequate

estimates, financial difficulties, lack of experience, poormanagement, difficult in controlling nominatedsubcontractors.� Consultant-related risks: These risks represent lack of

experience, performance delays, poor communicationwith other project parties.� Market-related risks: These risks include increase in

wages, shortages of technical personnel, materials infla-tion, shortage of materials, shortage of equipmentsrequired.

It can be seen that many of these risks exist in the earlystages of project implementation when project planningand designing are undertaken. This is because of the conse-quences that could possibly arise from improper planningand designing. Consequences will be much more costly toresolve in later stages of the project than those errors whicharise solely from construction activities. It is in this lightthat the paper proceeds to establish a framework for PPPsin risk mitigation in public sector projects.

L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594 591

1.3. A descriptive framework for public private partnerships

in risk mitigation

PPPs are a recent extension of what has now becomewell known as the ‘new public management’ agenda forchanges in the way public services are provided [35]. Underthis procurement, the private sector is encouraged to coop-erate with government to take part in the provision of pub-lic services. The success of PPP arrangements in deliveringpublic sector projects attracts interest in terms of theunderstanding of the means of risk mitigation during pro-ject implementation [36–38,22]. The reasons are multipleand examples include as follows.

� The PPP consortium is responsible for investment capi-tal and services over a long period. A longer time periodplaces pressure on the theme to manage risk factorsmore effectively but also to provide a long term periodof planning and operation by which to develop skillsand introduce control processes. The funding-providerwill also scrutinize the consortium’s plans for the projectcarefully before finalising the financing arrangements.This pre-contract scrutiny of PPP projects by the exter-nal fund-provider is an important factor which increasesthe likelihood of PPP projects being delivered on timeand within budgets [39].� PPP may be considered as an effective way to solve the

problem of insufficient capital provided for public sectorprojects. Private capital absorbed into providing publicservices can mitigate the fiscal difficulties of governmentdepartment, which may reduce the major risk factors ofdelay in progressing payment by clients [8,36,40].� Payments are always fixed in the PPP contract and do

not usually start until the project has been passed foruse and met requirements. The requirements encouragethe accurate assessment of project costs and completionof the construction project as soon as possible in orderto receive payments. This payment mechanism mayreduce most of contractor-related risks, such as contrac-tors’ unrealistic tenders, poor planning and schedulingat pre-construction stage, improper construction meth-ods adopted by the contractor [36,22].� PPP consortium members are committed to a long-term

relationship among each other. In order to achieve thequality of service required there has to be greater degreeof cooperation among the consortium members. Thiscan result in reductions of the risks of poor communica-tion among contractor, designer, consultant and client.Under traditional procurement, the constructors anddesigners tend to work separately, which has led tomany problems, such as delays in providing designinformation, ambiguities, mistakes, and inconsistenciesin design, poor buildability of design and late responsefrom designer to contractor inquires, etc. However,PPP encourages better integration between design andconstruction. This integration can mitigate the risks thatoccur frequently in traditional procurement. Moreover,

contractors and designers in PPP consortia have anincentive to work together at an early stage to decidethe best way to deliver the required service over the con-tract life. They are encouraged to take a longer termview of the design and construction. This results mini-mum life cycle cost other than only construction costand ensures that less design changes occur during theconstruction process [41].� PPPs arrangements could work through better under-

standing of discovering ways of improving their opera-tions [42]. Therefore, PPPs establish synergisticrelationships to manage risks effectively in the provisionof public services. PPPs, in effect, show an effectiveorganisational arrangement on collaborative form.

A switch from traditional public procurement methodsto infrastructure provision under a PPP arrangementimplies that the single role of government (as a projectmanager) is changed to a multiple role (as a project man-ager, inspector, customer, and partner). These changesmay mitigate the government and client-related risks, suchas increased investment requested by client, unrealistic con-tract durations being imposed by client and clients’ improperinterference during the construction phase. Thus, paperproceeds to apply the above-described framework to ana-lyse a PPP project in recreational sector in Hong Kong.

1.4. Case study on public private partnership in Hong Kong

Disneyland theme park

Hong Kong Disneyland (HKDLD) theme park is a pub-lic sector project procured through PPP to provide recrea-tional facilities for general public in Hong Kong andcontribute to the development of the Hong Kong economy.In the process of recovery of the economy from Asianfinancial crisis in the late 1990s, the Hong Kong govern-ment entered into an agreement with the private sector,The Walt Disney Company (WDC) on the developmentof Phase 1 of Hong Kong Disneyland (HKDLD). The310-acre park is located at Penny’s Bay on Lantau Islandof Hong Kong and consists of one Hong Kong Disneylandtheme park, two hotels (Disneyland Hotel and Disney’sHollywood Hotel), and retail, dining and entertainmentfacilities.

The Hong Kong Government signed the final contractdocuments with the Walt Disney Company on December10, 1999 to facilitate opening of Hong Kong Disneylandin 2005. By the agreement between Hong Kong Govern-ment and WDC, a joint-venture company, the Hong KongInternational Theme Parks Limited (HKITP) was set up todevelop and operate HKDLD [43]. In this partnership, theHong Kong Government funded the works of land recla-mation and other infrastructural works, and the privatesector was responsible for construction and operation offacilities. In order to create this theme park resort, about2 million cubic meters of topsoil have been created tosupport the extensive landscaping on the site [43]. The land

Table 2Risk allocation between the government and the private partner inHKDLD

Risk factors Public sectors Private sectors

R-1 Responsible(land acquisition)

Responsible(existing buildings)

R-2 ResponsibleR-3 Shared SharedR-4 ResponsibleR-5 Shared SharedR-6 ResponsibleR-7 Shared SharedR-8 ResponsibleR-9 Shared SharedR-10 ResponsibleR-11 ResponsibleR-12 ResponsibleR-13 Shared Shared

592 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594

lease will run for 50 years, with right of renewal for a fur-ther 50 years. The Government will own 57% of the sharesin the company initially, while Disney will own 43% of theshares.

There is therefore a need for the Hong Kong Govern-ment to closely monitor the performance of HKITP toensure the timely delivering of the park. In the develop-ment stage, given the extensive infrastructure worksinvolved, a special unit within the Civil EngineeringDepartment (CED), known as the Special Duties Office(SDO), was set up to assume the responsibility for the over-all delivery, coordination and monitoring of all relevantinfrastructure works at the HKDLD site and other relevantdevelopments in the vicinity of Northeast Lautau. TheSDO has also the responsibility to select, appoint, superviseand monitor the Government’s consultants, to employ con-tractors, and to liaise with various Government depart-ments, utility companies, the rail operators and HKITP[44]. As the HKDLD project involved a large number ofcomplex structural submissions with unconventionaldesigns, a special team in the Government’s BuildingDepartment was set up to undertake the additional respon-sibilities for overseeing the design works to ensure meetingthe target completion date.

The Disneyland Theme Park is one of the landmark pro-jects financed through PPPs in Hong Kong. The themepark project is expected to generate many thousands ofnew jobs. To the Disney, it has gained access to the world’sfreest economy in order to do business. The project willfurther promote Hong Kong’s tourist industry and willenhance the quality entertainment for the local community.The government anticipated that the park ‘‘will generatesubstantial long-term economic returns to the territory’’and ‘‘is a key strategic infrastructure component of arenewed and reinvigorated motivation to strengthen andconsolidate Hong Kong’s position as a must-see tourismdestination’’ [43].

1.4.1. Risk identification

Much of the risks of a PPP project come from the com-plexity and uncertainty of the arrangement in terms offinancing, taxation, technical details, market conditionsetc and changes over the duration of the project [39]. Inthe project HKDLD, the risks affecting the project perfor-mance are identified under the following 13 catalogues: siteacquisition risk (R-1); unexpected underground conditions(R-2); pollution to the land and surroundings (R-3); risk ofland reclamation (R-4); development risk (R-5); design andconstruction risks (R-6); changes of market conditions (R-7); inexperienced private partner (R-8); financial risks (R-9); operation risks (R-10); industrial action (R-11); legaland policy risks (R-12); force majeure (R-13).

1.4.2. Risk allocationThe appropriate allocation of risks between the public

and private sectors is a key requirement for the achieve-ment of value for money in PPP projects. The risks should

be allocated to either the public or private sectors depend-ing on the type of risk and the ability of either sector tocontrol and manage them. The general principle in PPPrisk allocation is that each individual risk is identifiedand then allocated to the party best be able to manage thatrisk. This principle has been adopted in managing risks inimplementing HKDLD project, and the allocations ofidentified risks are summarised in Table 2.

� R-1 – Site acquisition risk concerns both land acquisi-tion and protecting or demolishing existing buildings.According to the Agreement between the Hong KongGovernment and the WDC, the government has theresponsibility to take measures for ensuring the acquisi-tion of the HKDLD site and for protecting the site fromvisual intrusion and incompatible land uses in surround-ing areas. The private partner is responsible for the pro-tection or demolition of existing buildings or facilities onthe site. Thus, this risk is shared between the two parties.� R-2 – The risk of unexpected underground conditions is

allocated to the private partner. The private partner is inthe better position to undertake site survey particularlyon the underground conditions, such as any existingpiles, the earth conditions, etc.� R-3 – The risk of the pollution to the land and surround-

ings is shared between the government and the privatepartner. This risk associates with the operation of theproject HKDLD and the overall planning of the project.Therefore, the risk is shared between the two parties.� R-4 – The risk of land reclamation concerns with time

delay, cost overruns and other technical problems. Theprivate partner is responsible for the completion andconstruction of land reclamation, including associatedinfrastructure and facilities.� R-5 – Development risk concerns the loss in the project

development stage, for example, the waste of resourcescommitted by either the government or private partner.This risk is shared between the two parties.

L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594 593

� R-6 – The private partner is responsible for the risk ofdesign and construction, which concerns cost and timeoverruns, poor quality performance, poor safety mea-sures, and other risk factors relating to design and con-struction works.� R-7 – The risk of market changes is considered consid-

erably higher in this project. Market conditions suchas the provision of facilities, population, inflation, tech-nologies, are dynamic, and their changes can signifi-cantly affect the business performance of the project,HKDLD. Therefore, it is appropriate that this risk isshared between the government and the private partner.� R-8 – The government has to assume the risk of choos-

ing inexperienced private partner who may not be suit-able, or incompetent, or has financial difficulties.� R-9 – The implementation of HKDLD involves huge

amount of financial resources contributed by both theprivate partner and the Hong Kong Government. Theproject is financed by a mixture of debt and equity. Thereare uncertainties about the returns from these financialcommitments due to the changes in interest rates,exchange rates, ownership and other factors. It is agreedthat this type of risks is shared between the two parties.� R-10 – There are risks during the operation of the pro-

ject, which will affect the profitability of running the pro-jects, such as the changes in technologies, variations inmaterials or components for maintaining and repairingthe facilities. These risks are called operation risks andnormally borne by the business that is responsible forthe day to day maintenance and operation of the project.Thus, this type of risks is allocated to the private partner.� R-11 – The risk of industrial action is usually interpreted

as on strike among the employees who carry out variousduties or business activities during building and runningthe project. This risk associates with the managementwithin the business organisation, and is therefore allo-cated to the private partner.� R-12 – The business performance on operating any large

PPP projects such as the HKDLD can be affected bylegal and policy changes, such as changes in businesstax, urban planning, environmental protection, and oth-ers. When these changes do happen, the profitability ofrunning the project will be reduced. The governmentparty is in the best position to assume the consequencefrom these types of risks.� R-13 – The risk of force majeure can be various, such as

war, earthquake, flood and other types of natural calam-ities. In the event of these force majeures, business perfor-mance from running the project such as HKDLD can befrom detrimental to disastrous, and all project partieshave the responsibilities to share the consequences.

1.5. Conclusions and recommendations

The adoption of PPP in developing public sector pro-jects has been widely promoted to aim at achieving multi-

ple project objectives and mitigating project risks. Byusing PPP approach, the private partner’s skills in manag-ing an enterprise and controlling the efficiency and effec-tiveness in running a business can be brought to improvethe effectiveness in mitigation of operation risks in runningpublic sector projects. For example, by partnership, thegovernment concerned and the private partners have suffi-cient time to develop project specifications before the con-struction of a project, thus mitigating the design errorswhich could become very costly during the constructionstage. By referring to the practice in Hong Kong, this paperexamines the nature of public sector projects and the majorrisks in the implementation of public sector works. Thesemajor risks are identified as project-related, government-related, client-related, design-related, contractor-related,consultant-related, and market-related risk factors. WhenPPP mechanism is adopted in implementing public sectorprojects, these risks can be controlled and managed effec-tively by allocating them between the government and theprivate sector.

The example of HKDLD demonstrates how variousmajor risks in committing to a PPP project are allocatedor shared effectively between the government and privatepartner. In this typical PPP project, it is found that alloca-tion of site acquisition risks, inexperienced private partnerrisk and legal and policy risks to the public sector is appro-priate. Also, allocation of the design and constructionrisks, operation risks and industrial action risks to the pri-vate sector, and sharing of development risks, market risks,financial risks and force majeure between the two parties isimportant. These results present valuable lessons for boththe practitioners and researchers in application of PPPsto manage risks in delivering public sector projects in othercountries and regions.

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