A sequential procurement model for a PPP project pipeline

Abstract

Public---private partnerships have seen the daylight in response to the adagio that project responsibilities and risks should be efficiently allocated between the public and the private sector. Nevertheless, the considerable bidding costs inhibit the competition in the market. A trustworthy project agenda, also called a project pipeline, could substantiate the PPP market's attractiveness in the belief that a current success results in a knowledge and cost advantage in future tenders. This paper builds a sequential PPP procurement model and heuristically approximates the Markov perfect equilibrium in which contractors determine how much money they are willing to invest in the bid preparation and which mark-up is appropriate for each project in the pipeline. A pipeline of projects pushes down the mark-ups and the government procurement cost. Nonetheless, according to the experiments, only players with an initial experiential advantage tend to make higher investment efforts so that additional governmental policies, like a fractional reimbursement of the bid preparation efforts, might be required to level the playing field.