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Project Structuring & Risk Allocation Flashcards

7 cards from real CP3P practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Project Structuring & Risk Allocation flashcards as text

  1. In an availability-payment PPP for a hospital, which party typically bears demand (usage) risk?

    Answer: The public authority

    Availability payments are made when the asset meets performance standards no matter how much it is used, so the public authority keeps demand risk.

  2. How does an SPV usually pass construction cost and schedule risk down to its builder?

    Answer: Through a fixed-price, date-certain turnkey EPC contract

    A fixed-price, date-certain EPC contract passes cost overrun and delay risk from the SPV to the contractor on a back-to-back basis.

  3. Which principle best describes good risk allocation in a PPP?

    Answer: Allocate each risk to the party best able to manage it at the lowest cost

    Optimal allocation puts each risk with the party best able to control or absorb it at the lowest cost, which maximizes value for money.

  4. What is the main purpose of a direct agreement between the contracting authority and the project lenders?

    Answer: To give lenders step-in rights and cure periods before the authority can terminate

    Direct agreements let lenders receive notice of default, cure problems, and step in or substitute the concessionaire to protect their security.

  5. Under a typical PPP contract, what does a 'relief event' give the private partner?

    Answer: Extra time to perform and protection from termination, but no financial compensation

    Relief events protect the contractor from default and termination and give extra time, but the contractor still bears the financial cost.

  6. How are prolonged force majeure events usually handled in a PPP contract?

    Answer: Both parties get relief from performance, and either may terminate if the event goes on too long

    Force majeure is usually a shared risk: both parties are relieved of their obligations, and a long event gives a termination right with limited compensation.

  7. What range of senior debt gearing is typical for a well-structured availability-based PPP?

    Answer: 70-90%

    Availability-based PPPs have stable, government-backed revenue, so they can usually support high gearing of about 70-90% senior debt.