FTA Oversight Procedures - Federal Transit Administration - U.S. ...

6.3.3 Contractual Risk Allocation Assessment
The PMOC shall identify, assess, and evaluate proposed contractual allocations of risk, and shall
comment on the potential cost‐to‐benefit balance and effectiveness of such assignments. Where
actual assignments have been made, the PMOC shall evaluate amounts of liability that remain with
Grantee, including potential incapability of the third party to sustain its assigned liability if faced
with a loss.
It is the intent of this assessment to judge whether any contractual risk allocation provides a fair
and reasonable trade off against the actual costs of foreseeable risk events, offers the opportunity to
reduce total project cost, and does not represent risks which would be more reasonable for the
Grantee to retain or accept.
Such review comments shall consider the following:
• A risk has been assigned to the party most capable of performing the activities necessary to
reduce the risk.
• The ability of the Grantee or a third party to effectively perform activities necessary to
reduce manageable, assigned risks.
• The ability of the Grantee or a third party to withstand the consequences of assigned risk
liability.
• Safeguards in place, such as bonding or insurance, to protect Grantee in the case of failure of
a third party to withstand the consequences of contracted risk liability (that is, where
Grantee may become unexpectedly liable for previously transferred risk); alternatively, an
assessment of risk liability that would remain with Grantee in the case of third party failure.
• Instances where the consequence of significant risk is held by a party unable to control the
outcome of the risk event.
• Instances of significant risks that appear unconsidered in the contract packaging strategy.
• Impacts to project costs, especially where costs are increased due to allocation of risk
consequences to a third party.
• Recommended adjustments to prior‐developed cost and schedule risk models if affected by
contractual risk allocations.
• The ability of the Grantee’s organization to effectively evaluate the cost‐to‐benefit balance
between retaining or contracting significant risks and their consequences.
• Instances where the expected value of the contractually assigned risk liability appears
unbalanced to the offsetting change in contractual compensation, especially in negotiated
situations. This evaluation should include the following:
o The degree to which such allocated risks are foreseeable and quantifiable and the
OP 35 Project Contingency and Contract Package Review
Revision 0, June 2008
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