INTERNATIONAL JOURNAL OF

PROJECT
MANAGEMENT
International Journal of Project Management 24 (2006) 587–594
www.elsevier.com/locate/ijproman

Role of public private partnerships to manage risks in public

sector projects in Hong Kong
a,*
Li-Yin Shen , Andrew Platten b, X.P. Deng c

a
Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
b
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 can
achieve 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. This
complexity is further compounded in implementing public sector projects where multiple project objectives are expected by a wide range
of stakeholders who have different interests associated with the projects. With reference to current practice in Hong Kong, this paper
examines 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 risks
in 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 could
effectively allocate the design and construction risks, operation risks and industrial action risk to the private sector. Also, development
risks, market risks, financial risks and force majeure could be shared effectively between the two partners. These results present valuable
lessons for both the practitioners and researchers in application of PPPs to manage risks in delivering of public sector projects in other
countries and regions.
Ó 2006 Elsevier Ltd and IPMA. All rights reserved.

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

1. Introduction investments. The public sector projects in Hong Kong are

Public sector project (PSP) is a generic reference which is
applied to a wide range of public works. PSPs usually rep-
resent major part of construction works in any country or
region. According to the report of Hong Kong 2002 [1],
the HK Government was to spend about HK$28 billion
on capital works in 2002–2003, and maintain an average
annual capital works expenditure of about HK$29 billion
in the coming years. Risk management therefore becomes
an important mechanism to be adopted to ensure achieve-
ment of the planned objectives in committing to these great
*
Corresponding author. Tel.: +852 2766 5805; fax: +852 2764 5131.
E-mail address: bsshen@polyu.edu.hk (L.-Y. Shen).
broadly divided into two groups: (a) public housing projects
undertaken by the Housing Authority; (b) other public sec-
tor works commissioned by the Government of the Hong
Kong 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 large
extent unchanged [3–5,2]. Flyvbjerg et al. [4] examined
258 large transport infrastructure projects covering 20
countries, and they found that cost overruns occurred in
almost 90% of the projects examined, with the highest cost
overruns of 86% and 28% on average. According to the

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

doi:10.1016/j.ijproman.2006.07.006
588 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594
report of NAO [6], approximately 70% of the projects
financed by the central government experienced delays in
final completion in the UK, for example. Other conse-
quences due to poor project performance include poor
investment returns from the use of the project, delay in
the utilisation of the public facilities and extended inconve-
nience for the public. All of these problems exert a huge
financial pressure on government, and they can hold back
or impair planned economic development.
To improve the efficiency of managing project risks, the
Hong Kong Government has been promoting the applica-
tion of new procurement strategies for the implementation
of public sector works, in particular, the mechanism of
public private partnerships (PPPs). PPP is an effective
approach to enhance project productivity by bringing in
management efficiency and creative skills from business
practice, and reducing governmental involvement by using
private sectors in the provision of public services. PPP is a
development from the procurement strategy of BOT
(Build, Operate and Transfer) and it is particularly suitable
for large scale infrastructure projects. BOT system has been
mainly promoted in developing economies where infra-
structure works account for the majority of public invest-
ment. This situation arises from the need to reduce the
public sector budget contribution to infrastructure invest-
ment and where efficiency gains from commercial practices
can be imported to the sector. In order to reduce public
borrowing to finance direct expenditure, the governments
in developing countries have found private sources of pro-
ject finance as an effective strategy to assist implementation
of these projects [7]. The application of PPP has become
increasingly popular in developed economies for gaining
the advantage of improving efficiency and mitigating risks.
The Hong Kong Efficiency Unit [8] opted that effectiveness
of PPP is based on a partnership approach, where the
responsibility for the delivery of services is shared between
the public and private sectors, both of which bring in their
complementary skills to the enterprise.
By referring to the practice in Hong Kong, this paper
examines the major risks in the implementation of public
sector works, and thereby the ways that the application
of 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 discussions
over the two planned interviews generated valuable data
Table 1
Categories in the PWP and expenditure in 2003–04 (Hong Kong)
Head 701 Head 702
PWP Land acquisition Port and airport development
HKD (billion) 1.37 0.82
Head 707 Head 708
PWP New towns and urban Capital subventions and major
area development systems and Equipment
HKD (billion) 2.90 5.54
and understanding of the application of PPPs in Hong
Kong public sector works. The Efficiency Unit is the official
department for promoting the application of PPPs in Hong
Kong [8]. A case study analysis on PPP project in Hong
Kong was also conducted. The selected case study is a typ-
ical PPP project in Hong Kong which constitutes the public
real estates operated by private sectors. The analyses on
these data will result in valuable research findings to pres-
ent lessons learned in application of PPPs to manage risk in
public sector projects in other countries or regions. The
paper is structured in the following manner. First, the
paper presents an investigation into the delivering of public
sector projects in Hong Kong, which will lead to an analy-
sis of typical risks in public sector projects. Third, the role
of PPP to manage risks in public sector project is presented
in a framework based on insights from the above analysis.
Forth, the framework is applied to conduct a case study on
a 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 was
established in 1982 by Resolution of the Legislative Coun-
cil (LC) [9]. The income of CWRF is mainly derived from
the land premium, which is used to finance public works
programmes (PWP) including public construction works
[1]. The system known as the Capital Works Reserve Fund
Resource Allocation System (CWRF-RAS) was introduced
in 1987 to regulate the finance schedule for the planning of
capital works expenditure on a five-year basis. Within
PWP, projects are grouped under various expenditure
headings, 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 construction
industry in Hong Kong. The total Public Expenditure in
2001–2002 is HK$269.4 billion, of which the expenditures
on housing and infrastructure were HK$32.1 billion and
HK$24.9 billion respectively, assuming 21.9% of the total
expenditure [11]. The ETWB (Environment, Transport
and Works Bureau) is responsible for implementation of
all public projects except public housing which is managed
by the Housing Authority. ETWB is the policy maker who
is responsible for coordination of the project from the pro-
Head 703 Head 704 Head 705 Head 706
Buildings Drainage Civil engineering Highways
9.14 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 establishment
of the policy and technical guidelines for expeditious imple-
mentation of project programme. The scheduled construc-
tion works will then be carried out by contractors selected
through 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 for
implementation of public projects. The ETWB’s organisa-
tional structure is shown in the following figures. Fig. 1
shows the organisational structure of Architectural Ser-
vices Department (ASD) of the ETWB.
Fig. 2 indicates the organisational structure of the Civil
Engineering Department (CED).
Similarly, Fig. 3 shows the organisational structure of
Highways Department (HD) of the ETWB.
ASD is responsible for the provision of professional and
management resources on all matters relating to public
buildings (except public housing). It includes several
branches 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 presents
the organisational structure of HD [14], which is responsi-
ble for planning, designing, construction and maintenance

Architectural Services
Department (ASD)

Project Project Project Project Project Project

management management management management management management
branch branch branch branch branch branch

Fig. 1. Organization structure of the ASD.

The Civil Engineering

Department (CED)

Civil Engineering Geotechnical

Special Duties Office
Office (CEO) Engineering Office
(SDO)
(GEO)

Project Hong Landslip

Land
Port Management Kong Mainland Development Preventive
Development
Branch Branch Island Branch Branch Measures
Branch
Branch Branch

Fig. 2. Organization structure of the CED.

Highways
Department (HD)

3 Regional Offices Major Works Railway

(Hong Kong, Management Development
Headquarters
Kowloon &New Office (MWMO) Office (RDO)
Territory)

Fig. 3. Organization structure 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 HD
are to implement capital works, perform administration
and 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 the
implementation of railway developments. It is responsible
for planning future railway expansion to support the con-
tinued population growth and economic development of
the Territory.
The other departments of ETWB include Drainage Ser-
vices Department (DSD), Territory Development Depart-
ment (TDD), Water Supplies Department (WSD), and
Electrical & Mechanical Services Department (EMSD).
DSD is mainly responsible for sewage, Drainage, and Har-
bor Area Treatment projects [15]. TDD coordinates the
various governmental departments and utility companies
and oversees the engineering design and construction
works on land formation and infrastructure of the develop-
ment areas including new towns, townships, and new major
urban development areas [16]. WSD is responsible for
planning and management of water resources and water
supply systems. Its activities include designing and con-
structing waterworks projects, operating and maintaining
of water supply and distribution systems, controlling the
quality of water supply to customers, providing customer
services and enforcement of the Waterworks Ordinance
[17]. EMSD plays an important role to deliver reliable
and cost effective electrical, mechanical, electronic engi-
neering and building services to government departments
and public institutions, and provides an effective regulatory
framework 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 of
responsibility and authority across a broad range of partic-
ipants. This process has been generally characterised by the
review of multiple objectives including quality perfor-
mance, public satisfaction, financial return, environmental
performance and safety performance. Baldry [19] identified
a number of features embodied in committing to public
sector projects, such as that the execution of the projects
is rarely intended as a mean to realise a pure financial
reward or speculative gain; that project function is invari-
ably to support an operational activity or to meet a service
of benefit to a large body of consumers. Baldry [19] further
states that the risk impacts extend beyond straightforward
financial damage into operational disturbance, loss of ser-
vice or amenity, user dissatisfaction, and disruption of
strategic planning processes; and that success criteria are
many and varied. These features indicate that the multiple
objectives in implementing a public sector project are
affected by a wide range of risks that exist in different
dimensions 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 various
categories such as contractual, environmental, financial,
economic, market, logistical, design, construction and
operational risks. The failure to manage these risks effec-
tively may lead to serious consequences including poor
quality, 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 arising
from these risks [20,19,21,22].
A number of studies have been undertaken worldwide to
identify 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 grouped
into the following major categories:
 Project-related risks: These risks include cost and time
overruns, 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 project
specifications, delays in the settlement of contractor’s
claims, lack of project control.
 Design-related risks: These risks represent inadequate
soil investigation, delays in design, ambiguities and
inconsistencies in design and design changes.
 Contractor-related risks: These risks include inadequate
estimates, financial difficulties, lack of experience, poor
management, difficult in controlling nominated
subcontractors.
 Consultant-related risks: These risks represent lack of
experience, performance delays, poor communication
with other project parties.
 Market-related risks: These risks include increase in
wages, shortages of technical personnel, materials infla-
tion, shortage of materials, shortage of equipments
required.
It can be seen that many of these risks exist in the early
stages of project implementation when project planning
and designing are undertaken. This is because of the conse-
quences that could possibly arise from improper planning
and designing. Consequences will be much more costly to
resolve in later stages of the project than those errors which
arise solely from construction activities. It is in this light
that the paper proceeds to establish a framework for PPPs
in risk mitigation in public sector projects.
 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594
1.3. A descriptive framework for public private partnerships
in risk mitigation
PPPs are a recent extension of what has now become
well known as the ‘new public management’ agenda for
changes in the way public services are provided [35]. Under
this 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 delivering
public sector projects attracts interest in terms of the
understanding of the means of risk mitigation during pro-
ject implementation [36–38,22]. The reasons are multiple
and examples include as follows.
 The PPP consortium is responsible for investment capi-
tal and services over a long period. A longer time period
places pressure on the theme to manage risk factors
more effectively but also to provide a long term period
of planning and operation by which to develop skills
and introduce control processes. The funding-provider
will also scrutinize the consortium’s plans for the project
carefully before finalising the financing arrangements.
This pre-contract scrutiny of PPP projects by the exter-
nal fund-provider is an important factor which increases
the likelihood of PPP projects being delivered on time
and within budgets [39].
 PPP may be considered as an effective way to solve the
problem of insufficient capital provided for public sector
projects. Private capital absorbed into providing public
services can mitigate the fiscal difficulties of government
department, which may reduce the major risk factors of
delay 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 for
use and met requirements. The requirements encourage
the accurate assessment of project costs and completion
of the construction project as soon as possible in order
to receive payments. This payment mechanism may
reduce most of contractor-related risks, such as contrac-
tors’ unrealistic tenders, poor planning and scheduling
at 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 the
quality of service required there has to be greater degree
of cooperation among the consortium members. This
can result in reductions of the risks of poor communica-
tion among contractor, designer, consultant and client.
Under traditional procurement, the constructors and
designers tend to work separately, which has led to
many problems, such as delays in providing design
information, ambiguities, mistakes, and inconsistencies
in design, poor buildability of design and late response
from designer to contractor inquires, etc. However,
PPP encourages better integration between design and
construction. This integration can mitigate the risks that
occur frequently in traditional procurement. Moreover,
591
contractors and designers in PPP consortia have an
incentive to work together at an early stage to decide
the best way to deliver the required service over the con-
tract life. They are encouraged to take a longer term
view of the design and construction. This results mini-
mum life cycle cost other than only construction cost
and ensures that less design changes occur during the
construction process [41].
 PPPs arrangements could work through better under-
standing of discovering ways of improving their opera-
tions [42]. Therefore, PPPs establish synergistic
relationships to manage risks effectively in the provision
of public services. PPPs, in effect, show an effective
organisational arrangement on collaborative form.
A switch from traditional public procurement methods
to infrastructure provision under a PPP arrangement
implies that the single role of government (as a project
manager) is changed to a multiple role (as a project man-
ager, inspector, customer, and partner). These changes
may mitigate the government and client-related risks, such
as increased investment requested by client, unrealistic con-
tract durations being imposed by client and clients’ improper
interference during the construction phase. Thus, paper
proceeds 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 and
contribute to the development of the Hong Kong economy.
In the process of recovery of the economy from Asian
financial 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 development
of Phase 1 of Hong Kong Disneyland (HKDLD). The
310-acre park is located at Penny’s Bay on Lantau Island
of Hong Kong and consists of one Hong Kong Disneyland
theme park, two hotels (Disneyland Hotel and Disney’s
Hollywood Hotel), and retail, dining and entertainment
facilities.
The Hong Kong Government signed the final contract
documents with the Walt Disney Company on December
10, 1999 to facilitate opening of Hong Kong Disneyland
in 2005. By the agreement between Hong Kong Govern-
ment and WDC, a joint-venture company, the Hong Kong
International Theme Parks Limited (HKITP) was set up to
develop and operate HKDLD [43]. In this partnership, the
Hong Kong Government funded the works of land recla-
mation and other infrastructural works, and the private
sector was responsible for construction and operation of
facilities. In order to create this theme park resort, about
2 million cubic meters of topsoil have been created to
support the extensive landscaping on the site [43]. The land
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- be allocated to either the public or private sectors depend-
ther 50 years. The Government will own 57% of the shares ing on the type of risk and the ability of either sector to
in the company initially, while Disney will own 43% of the control and manage them. The general principle in PPP
shares. risk allocation is that each individual risk is identified
There is therefore a need for the Hong Kong Govern- and then allocated to the party best be able to manage that
ment to closely monitor the performance of HKITP to risk. This principle has been adopted in managing risks in
ensure the timely delivering of the park. In the develop- implementing HKDLD project, and the allocations of
ment stage, given the extensive infrastructure works identified risks are summarised in Table 2.
involved, a special unit within the Civil Engineering
Department (CED), known as the Special Duties Office  R-1 – Site acquisition risk concerns both land acquisi-
(SDO), was set up to assume the responsibility for the over- tion and protecting or demolishing existing buildings.
all delivery, coordination and monitoring of all relevant According to the Agreement between the Hong Kong
infrastructure works at the HKDLD site and other relevant Government and the WDC, the government has the
developments in the vicinity of Northeast Lautau. The responsibility to take measures for ensuring the acquisi-
SDO has also the responsibility to select, appoint, supervise tion of the HKDLD site and for protecting the site from
and monitor the Government’s consultants, to employ con- visual intrusion and incompatible land uses in surround-
tractors, and to liaise with various Government depart- ing areas. The private partner is responsible for the pro-
ments, utility companies, the rail operators and HKITP tection or demolition of existing buildings or facilities on
[44]. As the HKDLD project involved a large number of the site. Thus, this risk is shared between the two parties.
complex structural submissions with unconventional  R-2 – The risk of unexpected underground conditions is
designs, a special team in the Government’s Building allocated to the private partner. The private partner is in
Department was set up to undertake the additional respon- the better position to undertake site survey particularly
sibilities for overseeing the design works to ensure meeting on the underground conditions, such as any existing
the target completion date. piles, the earth conditions, etc.
The Disneyland Theme Park is one of the landmark pro-  R-3 – The risk of the pollution to the land and surround-
jects financed through PPPs in Hong Kong. The theme ings is shared between the government and the private
park project is expected to generate many thousands of partner. This risk associates with the operation of the
new jobs. To the Disney, it has gained access to the world’s project HKDLD and the overall planning of the project.
freest economy in order to do business. The project will Therefore, the risk is shared between the two parties.
further promote Hong Kong’s tourist industry and will  R-4 – The risk of land reclamation concerns with time
enhance the quality entertainment for the local community. delay, cost overruns and other technical problems. The
The government anticipated that the park ‘‘will generate private partner is responsible for the completion and
substantial long-term economic returns to the territory’’ construction of land reclamation, including associated
and ‘‘is a key strategic infrastructure component of a infrastructure and facilities.
renewed and reinvigorated motivation to strengthen and  R-5 – Development risk concerns the loss in the project
consolidate Hong Kong’s position as a must-see tourism development stage, for example, the waste of resources
destination’’ [43]. committed by either the government or private partner.
This risk is shared between the two parties.
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 of
financing, taxation, technical details, market conditions Table 2
Risk allocation between the government and the private partner in
etc and changes over the duration of the project [39]. In
HKDLD
the project HKDLD, the risks affecting the project perfor-
Risk factors Public sectors Private sectors
mance are identified under the following 13 catalogues: site
acquisition risk (R-1); unexpected underground conditions R-1 Responsible Responsible
(land acquisition) (existing buildings)
(R-2); pollution to the land and surroundings (R-3); risk of
R-2 Responsible
land reclamation (R-4); development risk (R-5); design and R-3 Shared Shared
construction risks (R-6); changes of market conditions (R- R-4 Responsible
7); inexperienced private partner (R-8); financial risks (R- R-5 Shared Shared
9); operation risks (R-10); industrial action (R-11); legal R-6 Responsible
R-7 Shared Shared
and policy risks (R-12); force majeure (R-13).
R-8 Responsible
R-9 Shared Shared
1.4.2. Risk allocation R-10 Responsible
The appropriate allocation of risks between the public R-11 Responsible
and private sectors is a key requirement for the achieve- R-12 Responsible
R-13 Shared Shared
ment of value for money in PPP projects. The risks should
 L.-Y. Shen et al. / International Journal of Project Management 24 (2006) 587–594
 R-6 – The private partner is responsible for the risk of
design and construction, which concerns cost and time
overruns, 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 such
as 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 is
shared 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 the
private partner and the Hong Kong Government. The
project is financed by a mixture of debt and equity. There
are uncertainties about the returns from these financial
commitments due to the changes in interest rates,
exchange rates, ownership and other factors. It is agreed
that 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 in
materials or components for maintaining and repairing
the facilities. These risks are called operation risks and
normally borne by the business that is responsible for
the 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 various
duties or business activities during building and running
the project. This risk associates with the management
within 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 by
legal and policy changes, such as changes in business
tax, urban planning, environmental protection, and oth-
ers. When these changes do happen, the profitability of
running the project will be reduced. The government
party is in the best position to assume the consequence
from 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 be
from detrimental to disastrous, and all project parties
have 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-
593
ple project objectives and mitigating project risks. By
using 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 improve
the effectiveness in mitigation of operation risks in running
public sector projects. For example, by partnership, the
government concerned and the private partners have suffi-
cient time to develop project specifications before the con-
struction of a project, thus mitigating the design errors
which could become very costly during the construction
stage. By referring to the practice in Hong Kong, this paper
examines the nature of public sector projects and the major
risks in the implementation of public sector works. These
major risks are identified as project-related, government-
related, client-related, design-related, contractor-related,
consultant-related, and market-related risk factors. When
PPP mechanism is adopted in implementing public sector
projects, these risks can be controlled and managed effec-
tively by allocating them between the government and the
private sector.
The example of HKDLD demonstrates how various
major risks in committing to a PPP project are allocated
or shared effectively between the government and private
partner. In this typical PPP project, it is found that alloca-
tion of site acquisition risks, inexperienced private partner
risk and legal and policy risks to the public sector is appro-
priate. Also, allocation of the design and construction
risks, 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 is
important. These results present valuable lessons for both
the practitioners and researchers in application of PPPs
to manage risks in delivering public sector projects in other
countries and regions.
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