Contingent Liabilities: Issues and Practice; Aliona Cebotari; imf working Paper 08/245; October 1, 2008

In case of PPPs, comprehensive frameworks to ensure proper risk taking and allocation 
are more common (e.g., Australia, Colombia, Greece, Ireland, Portugal, South Africa, 
U.K.). Given the potential costs associated with PPPs and the fact that risk transfer also 
determines whether or not an investment asset is considered on the government’s balance 
sheet, risk allocation under PPP schemes is often reflected in national PPP or international 
legislation (e.g., EU) (OECD/ITF, 2008).
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A common requirement of such frameworks is 
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Financial Management Guidance No. 6, “Guidelines for Issuing and Managing Indemnities, Guarantees, 
Warranties and Letters of Comfort,” September 2003.
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UNCITRAL (2001) recommends, on the other hand, not including risk allocation in the PPP legislation but 
leaving it to contracts, given that each project is different and may require a different allocation of risks.

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approval of only those projects that pass the cost-benefit analysis, provide value for money,
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and include a rigorous assessment of risks. 
 
Ad hoc mechanisms can also be created to ensure proper scrutiny of decisions to take 
on contingent liabilities. One example comes from the U.S., where Congress set up 
independent boards to consider loan guarantee applications under each of its four temporary 
loan guarantee programs introduced in the early 2000s (for the steel, oil and gas, airline, and 
rural television industries). The experience with these loan guarantee boards is reviewed in 
Gramlich (2003) and seems to be positive, in large part because of the overall strength of the 
U.S. institutions. The independence of the boards—which usually consisted of 
representatives of the Federal Reserve, the Treasury, and the relevant Department—reduced 
the influence of lobbying and allowed the guarantee approval process to remain at an 
analytical level. The main work of the boards consisted of trying to identify those guarantee 
applications that had positive net social benefits—that is, where the nonmarket benefits of 
keeping a firm alive outweighed the cost of the guarantee program to the taxpayers, including 
the credit subsidy cost, administrative cost and other.