A Fuzzy Approach for the Allocation of Risks in Public-Private Partnership Water-Infrastructure Projects in Developing Countries

The allocation of risk between public-sector and private-sector parties in a public-private partnership (PPP) contract is a critical element of success that should be based on an assessment of the party best able to manage it. Assessing the risk-management capability of a contracting party to reach an efficient risk-allocation decision is subjective and implicit because it requires value judgments and experiential knowledge of expert practitioners. This paper draws on a set of established risk-allocation criteria (RAC) and the fuzzy-set approach to examine the allocation of five key risk factors related to PPPs in water supply infrastructure projects. The fuzzy set is used to deal with ambiguity in the linguistic RAC to minimize the fuzziness and bias in qualitative expert knowledge that characterize real-life decision-making. To explore how the risks should be allocated, three rounds of a Delphi questionnaire survey was conducted to elicit knowledge of practitioners with hands-on experience related to PPP projects in the water sector by requesting them to evaluate the risk factors on each risk-allocation criterion. The RAC and experiential knowledge were modeled to reflect capabilities of the public-private parties and to suggest the risk-allocation decisions for the corresponding risks. The results show that the risks should be shared between the government and the private sector, rather than wholly transferring specific risks to a particular party. This paper shows that it is possible to effectively distribute risks between the public-private parties based on fuzzy-set theory, RAC, and qualitative expert knowledge. The method has a merit of enabling decision-makers to utilize qualitative linguistic terms to assess risk-management capabilities of public-private parties and of predicting risk-allocation strategies in a contract. Also, the paper hints that, in developing countries, governments may take some political actions to make a water-infrastructure project to be executed via the PPP mode more attractive to private investors.