Abstract
This paper analyses regulation by contract in public‐private partnerships (PPPs) for infrastructure services. Although the benefits of competition for the market and subsequent regulatory contracts are recognized, the literature also identifies contract design failures.When considering these limitations, it is useful to distinguish between contracts associated with purely contractual PPPs (concessions) and contracts for institutionalized PPPs (mixed company). Two cases from the Portuguese water sector are used to illustrate problems arising in the preparation of public tender documents: the ‘best’ bidder is often not the winner. Often, risks are not allocated correctly nor is effective monitoring ensured. Comparisons between the two types of contracts show how external regulation can be useful in mitigating contractual problems. This examination of bidding procedures and contract design yields several implications for policy‐makers; in addition, the study presents recommendations for improving regulatory contracts.
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