1.1. Background of Study
The existing of various risks and financial limitation always holds the government back during initiating new infrastructure projects. Therefore, it is important for developing country like Malaysia to practice PPP as it can help the government to save resources by share the risks to the private sector for unfamiliar projects (Hodge & Greve, 2007). In general, there are two significant advantages of implementing PPP compare to the traditional procurement. First is reduce the government budget on infrastructure project and spend in other government policies priority. Second is better value for money in constructing public infrastructure and facilities (Bing, Akintoye, Edwards, & Hardcastle, 2005). This can be archive due to the use of private funding in PPP project. The availability of private funding given government new capacity to provide the infrastructure faster and enhance services delivery to the society.
PPP can be define as cooperation between public and private sector in sharing risks, cost and resources to develop products or services (Ham & Koppenjan, 2002). The definition emphasizes risks, cost and resources sharing as a vital component of PPP. Public and private sector have specific qualities and the purpose of PPP is to draw out the best potential from both side in order to improve project execution and public services delivery (Tang, Shen, & Cheng, 2010). PPP project normally required the private sector to involve in finance, design, construction and operation of public facility. However, the arrangement of responsibilities in PPP varies for each project depend on the acceptability of risks agreed by both parties during the negotiation phase (Bing, Akintoye, Edwards, & Hardcastle, 2005).
The nature of PPP project is not an easy task due to the technical, legal, political and economy complexity of the infrastructure project. Therefore, an effective risk allocation between parties is crucial to ensure the success of PPP project. Risk allocation is a primary measure of assignment of risk between the public and private sector, excluding the end users (Bing, Akintoye, Edwards, & Hardcastle, 2005). In PPP, the allocation of risk is made base on the capabilities of the parties to adopt and manage the risks of the projects. In addition, the different priority between public and private sector in constructing PPP project need to be prudently coordinate to minimize future disputes (Ng & Loosemore, 2007). The private primary aims is to generating income on their investment to cover their initial and operational cost consequently gain profit. On the other side, the government aim to ensure efficient and reliable services deliver to the society at a lower cost. In this context, the aim of this paper is to explore the considerations to be made in effective risk distribution especially in private sectors because they endure the most risks in PPP arrangement.
1.2. Problem Statement