Reflections on the proper allocation of risks in PPP Contracts

Abstract

Contracts are instruments for distributing and allocating risks between the parties to the contract. During the negotiation, the parties will seek to assume as few risks as possible and will build the contract on the basis of their ability to transfer their particular interests to the contractual rules. However, when it comes to the state, it transfers to the contract the greatest interest of all: the public interest. This has a far-reaching impact on the way in which risks are allocated or even on the types of risks to be foreseen and the solutions to be adopted in case they materialise. In addition to those contracts concluded under the public investment system, a clear example of this is the public-private participation contracts (better known as Public Private Partnerships). International doctrine (especially English) has created different guiding criteria for the allocation of risks in PPP contracts and, in the Peruvian case, the Ministry of Economy and Finance has issued guidelines in this regard, given the importance of an adequate allocation of risks for a healthy contractual execution, taking into account that this type of contract has a long duration. This has an impact on social welfare (infrastructure and public services in less time and of higher quality). This paper focuses on assessing the different risk allocation criteria and weighing the importance of agreeing on them.