Public-private Partnership Contracts Research Articles

Incentive Mechanism of Utility Tunnel PPP Projects with User Involvement

Users of utility tunnel public–private partnership (PPP) projects are productive corporate entities with a specific scope, a limited quantity, and strong bargaining power. They possess the ability and motivation to participate in PPP projects through equity investments. Tunnel PPP projects involving user participation are implemented jointly by consortia comprising construction contractors and users. Given that the government, construction contractors, and users have different interests, significant conflicts of interest arise among them. Furthermore, there exists dual information asymmetry between the government and construction contractors, as well as between the government and users. The government lacks a direct observation of the true ability endowments of construction contractors and users prior to signing PPP contracts, and it cannot directly observe the effort levels exerted by the construction contractors and users after contract signing. The combination of dual information asymmetry and conflicting interests may result in adverse selection and moral hazard on the part of construction contractors and users. Drawing on principal–agent theory, this study constructed incentive models with and without user involvement, examined the impact of user involvement on the effort level of construction contractors and the performance of PPP projects, and designed a reasonable incentive mechanism. The objective is to ensure that construction contractors and users truthfully report their ability endowments during the bidding stage and exert optimal efforts during the construction and operation stages. This research provides new insights for promoting the sustainable development of tunnel PPP projects. A case analysis of a PT tunnel PPP project and an SC tunnel PPP project demonstrates the reasonableness and feasibility of the research findings.

Public–Private Partnerships: A Fresh Risk-Based Approach to Water Sector Projects

This study focused on the unbalanced relationships that can arise in current public–private partnership (PPP) risk management frameworks, especially in developing countries’ water sectors. Different stakeholders’ perceptions of risk management were examined by analyzing 15 interviews in Portugal and Mozambique. The hybrid method included semantic, descriptive statistic, content, and narrative analyses. To achieve the research objectives, the semi-structured interview transcripts were processed using quantitative and qualitative techniques to collate relevant actors’ opinions of risk management in PPP water projects. Five risk categories were identified. The interviewed experts ranked the financial risk category as the most crucial, followed by infrastructure, commercial, technical and operational, and context risks. However, when the transcripts were evaluated from a risk factor perspective, the context risk category unexpectedly jumped to first place. Twenty-five high-impact risk factors were isolated in the semi-structured interview contents. The top five most critical risk factors were political interference, no performance measurement baselines, an unfavorable private investment climate, nonpayment of bills, and water assets uncertain condition. The results comprise a fresh contribution to the existing knowledge about experts’ perceptions of PPP contract risks, including that prior research and specialists categorize financial risks as the most important. The findings further reveal that experts consider managing context risks to be the key factor in PPPs success in developing countries, as well as highlighting the need to explore these risks more fully in emerging economies’ water sectors. In addition, a complete risk management cycle is proposed based on the interviewed professionals’ opinions, in which risk assessment and risk treatment or mitigation measures are dealt with simultaneously.

Public private partnerships contract under moral hazard and ambiguous information

This paper studies optimal Public Private Partnerships contract between a public entity and a consortium, with the possibility for the public to stop the contract. The public (“she”) pays a continuous rent to the consortium (“he”), while the latter gives a response characterized by his effort. Usually, the public cannot observe the effort done by the consortium, in addition, the law of the Agent’s effort which affects the distribution of the total output is to be chosen over a set of probabilities, leading to a Principal-Agent problem with moral hazard and Knightian uncertainty characterized by [Formula: see text]-ignorance. Our problem is formulated as a Stackelberg leadership model between the public and the consortium. This problem is solved in three steps. The first one consists on characterizing the worst case, then we derive the Agent’s best response. In the third step, we solve the Principal problem by maximizing the social value of the project minus the rent paid, which is a standard stochastic control problem. The public value function is characterized by the solution of an associated Hamilton–Jacobi–Bellman variational inequality. The public value function, the optimal effort and the optimal rent are computed numerically in a feedback form by using the Howard algorithm. We show numerically that each increase in the degree of Knightian uncertainty leads to increase the optimal effort, and decrease the value function.

The effects of governance on performance: the case of Public–Private Partnership (PPP) toll roads in Indonesia

This article examines how contract model selection shapes PPP governance, which may affect the construction performance of PPP Toll Roads in Indonesia. This study compares the performance of PPP contracts used to build the 49 toll road projects, i.e. the Build-Operate-Transfer (BOT), Supported BOT (SBOT) and Design-Build-Finance-Operate-Maintenance (DBFOM) contracts. Using an Instrumental Variable Two-Stage Least Squares Regression (IV-2SLS) approach, this study discovers that SBOT contracts have lower costs and shorter completion times than BOT contracts due to a better incentive structure, which includes not only various government supports but also stronger control mechanisms in preparation, monitoring and audit. Meanwhile, using an OLS regression, DBFOM contracts have lower costs and shorter completion times than BOT contracts because private firms were able to better internalize externalities and perform better design and monitoring because they were in charge of the planning from the beginning. These findings suggest that the choice of contract has significant effects on the construction performance of PPP and transaction cost minimization is one of the keys to consider in the selection of PPP contract governance, especially to anticipate cost overrun and time delay risks.

Legislative framework for public–private partnerships in the Sultanate of Oman

An effective regulatory framework is essential to attract international investment in infrastructure development and public services through public–private partnerships (PPPs). A transparent and predictable regulatory environment makes PPPs work in the long term, as this enables private sector participants to manage long-term risks in the most effective and efficient way. The legal framework for PPPs in Oman consists of four key pieces of legislation. The Foreign Capital Investment Law (Royal Decree 50/2019) outlines the procedures for application of an investment project licence and provides for investment incentives and guarantees to international investors. The Law of Privatization (Royal Decree 51/2019) provides a transparent framework for awarding of privatisation contracts. The Public Private Partnership Law (Royal Decree 52/2019) outlines the procedures for tendering and award of PPP projects and the essential elements of PPP contracts. The Bankruptcy Law in Oman (Royal Decree 53/2019) updates the law on corporate distress and introduces the concepts of corporate restructuring, preventative composition and bankruptcy-filing procedures. These four royal decrees are evaluated in this paper. The royal decrees promulgated in succession by the Sultanate of Oman bring privatisation and PPP policy in line with international best practice and constitute a central component of the nation’s strategy and supply side reforms to diversify the economy.

Legal Nature of Concessionaire and Public-Private Partnership Contracts

Abstract This paper aims to analyze the legal nature of concessionaire and PPP contract in Albanian Legislation and through the perspective of European legislation analyzing mainly the Italian and French legislation and doctrine in this area. The main hypothesis that this paper aims to address is related to the fact, if it is enough to categorize these kinds of contracts with a hybrid status between public and private law, or the fact that so many countries appellate more and more to the concessionaire and PPP contracts is the momentum to create a separate law discipline as so many universities in France, USA, Japan do. Also, this paper aims to make a comparative study of Albanian legislation in the area of concessionaire and PPP contracts with the European legislation being the fact that for Albania this is a new area, and is a considerable lake of doctrine and legal studies that analyze the specifics and characteristics of such kind of contracts, putting at the last instance not only the Albanian contractual authorities but also the national courts in difficulties of implementation and interpretation.

Public investment as downward benefit distribution: Theory and evidence from China’s public–private partnership programs

Although previous studies have documented the political cycle of public investment in various countries, we still know little about its distributional consequences. We address this question by analyzing an emerging form of public infrastructure investment in China: public–private partnership (PPP). We argue that mayors use infrastructure investment to distribute benefits, thereby securing local compliance and support. Our empirical analysis draws on a unique dataset that matches PPP contracts with Chinese mayors who served from 2010 to 2017. We demonstrate a salient tenure effect: mayors decrease public investment over time during their tenure. Moreover, the tenure effect is more salient among mayors who lack local work experience. Contract-level evidence shows that mayors disproportionately allocate more investment to local firms, especially local state-owned enterprises, to garner local support. We show that the downward tenure effect is mainly driven by officials’ survival concerns rather than promotion incentives.

Avoiding Disputes in PPP Road Contracts: Quantifying Impacts of Increased Allowable Truck Loads

Dealing with changes is one major concern in long-term public-private partnerships (PPP) concessions, especially during the implementation phase, as some changes might lead to disputes between PPP partners and disrupt the successful execution of the project. In the transport sector, a change in the law regulating truck loading standards inevitably influences the financial stability of road projects procured through PPP. That is, the government’s decision of increasing the permissible truck load can lead to an accelerated deterioration of the pavement, and accordingly imposes additional expenditures that are borne by the concessionaire for maintaining the road condition at a satisfactory level, as required by the PPP contract terms. Given the fact that PPP concessions allow for additional compensations to the concessionaires in the case of modifications in the legislative and regulatory conditions, this study proposes two remuneration strategies for consideration by the concerned government to mitigate the adverse implications of increasing truck load limit on the concessionaire’s financial status and consequently to avoid the occurrence of disputes with the concessionaire. The work presented herein is twofold, as it quantifies the impact of the change in truck load regulations on two main contract terms: the toll regime and the concession period. Under the first approach, the government would provide direct compensation to the concessionaire through a shadow toll paid per overloaded truck. The value of the shadow toll was found to be largely influenced by the truck class, truck load, pavement structure, climatic conditions and traffic volumes. Moreover, it was found that the highest values of shadow tolls would apply to projects with relatively thin pavements and high traffic volumes. Under the second approach, an extension of the concession period was considered, which allows the concessionaire to recover the increased pavement maintenance costs. It was found that the length of the extended term depends, to a great extent, on the project’s characteristics in terms of the pavement structure, climatic conditions, traffic volumes, and more importantly on the toll revenues generated during the extended period. The two proposed alternative compensation techniques were devised and demonstrated through a methodology that involved flexible pavements performance prediction under varying loading conditions, using AASHTOWare Pavement ME. The proposed methodologies represent a framework that helps the two main parties involved in a PPP road project (i.e., the concessionaire and the highway agency) to accurately assess the effect of any increase in truck loading on the pavement performance and to decide on a fair compensation to be offered by the highway agency to the concessionaire, thereby contributing to the avoidance of dispute occurrence.

Do regional characteristics influence PPP contract governance skills requirements?

PurposeThis study aims to seek, on the basis of Hofstede's culture consequences, to explore the notion that regional characteristics may influence the prioritisation of certain types of public-private partnerships (PPP) contract governance skills over others. It further sets out to determine which skills are considered the most critical between the groups of respondents surveyed.Design/methodology/approachTo bring this important and neglected perspective into the mainstream of PPP discussions, the study, being of an exploratory nature, relied on a survey of 340 respondents from around the globe. The respondents are a rich mix of public policy experts, economists, construction professionals, project finance experts, lawyers and academic researchers in PPP.s.FindingsAnalysis revealed that, regional characteristics was an important factor influencing skills prioritisation. Furthermore, exploratory factor analysis with Monte Carlo principal component analysis (PCA) confirmation revealed that project management, contract design, negotiations, performance management and stakeholder management skills were very critical for successful contract management of PPP projects.Practical implicationsThe findings indicate that the design and implementation of regulatory governance for infrastructure PPPs should be context-specific rather than the current one-size-fits all model. Training should be tailored to reflect regional specific characteristics.Originality/valueStudies are increasingly pointing to the absence of critical PPP skills among institutions responsible for managing PPP contracts. This lack of capacity has resulted in poor oversight of private companies providing public services resulting in poor services, and financial recklessness, which threaten the sustainability of service provision.

Principal Risks Associated with Public-Private Partnership Projects in Uganda

Public-Private Partnerships (PPPs) have been adopted globally to reduce funding gaps amidst an increasing need for public infrastructure. However, they are prone to several risks. Little attention has been paid to this crucial phenomenon in Uganda, despite the rising interest in the use of the PPP model. Through a questionnaire survey with PPP experts in Uganda, 34 principal risks were identified of which the top 10 are construction completion, government corruption, construction cost overrun, land acquisition, delay in project approval and permits, high financing cost, operation cost overrun, inadequate tender competition, procurement risk, and inability to service debt risk. Most of these were found to arise from inadequate experience in PPPs, the complexity of the PPP model, high levels of corruption and the immature domestic financial market. The knowledge of these risks can guide PPP contract negotiations and potential investors in their investment decisions, especially the objective assessment of PPP projects.

The Legislative Defects of Public-Private Partnership in China and Lessons Drawn

Over the recent decades of economic growth, the Public-Private Partnership (PPP) has been an emerging business model for the Chinese government to establish an efficient relationship with the private sector for public policy. However, there exist obstacles to truly implementing a PPP in place. Apart from inexperienced PPP implementation, the lack of appropriate legal guidance is another major barrier to carrying out a PPP project. A shortage in a well-structured legal system, encompassing relevant legislative deficiency, leaves the scholars the duty to navigate the way for enhancing legislative structure for PPP. Even loads of research have been done on defining the role of the government and the private capital, in hopes that the risk-bearing process involved in a PPP project would be properly designed. But little discussion thereof has been carried out, combining the analysis with the legal nature of public-private partnership itself. Therefore, this paper presents a theoretical framework for examining the legal nature of PPP and analyses the legislative defects regarding PPP with a case. In this paper, the fragmented nature of PPP legislation in China is figured out, pointing to the absence of laws with higher hierarchies regulating PPP, which reveals the vague legal nature of PPP contracts and little legal constraints on the government. What is also surfaced from the fragmented and chaotic PPP legislative state is the ill categorized legal nature of the government, with overlapping roles from different governmental departments, exacerbating the unevenly distributed risks imposed on different parties involved in PPP. This paper then ends with conclusions extracted from experience drawn from both inside and outside China, particularly making an analogy with France, and stresses the need to build a more detailed and logically clarified legislative system for PPP.

Public Finance, Fiscal Rules and Public–Private Partnerships: Lessons for Post-COVID-19 Investment Plans

We explore the distribution of public–private partnerships (PPPs) among the European Union countries, with a special focus on fiscal rules and budgetary constraints while controlling for empirically identified drivers. While offering the opportunity to increase innovation and efficiency in the public sector infrastructure, PPPs allow governments to relax their budget and borrowing constraints. We find that the state of public finances influences the government’s choice of PPPs and makes them more appealing for reasons other than efficiency. Stringent numerical rules on the budget balance also foster government’s opportunism in the choice of PPPs. On the other hand, high levels of public debt increase the country risk, and discourage private investors from PPP contracts. The results highlight the importance of restoring PPP investment choices based on efficiency criteria and adapt fiscal rules to shield public investment while stabilizing private expectations by means of credible trajectories of debt reduction. The findings contribute to the debate on the role of fiscal rules in fiscal policy and of PPPs in infrastructure financing.

Public–Private Partnership Contract Framework Development for Highway Projects: A Delphi Approach

Construction projects can be delivered through various approaches; nevertheless, all practitioners and involved parties have a mutual goal, which is completing the project within the original scope, defined budget, and schedule. Reviewing the literature on public–private partnerships (PPPs) showed that many efforts have been made to cover different research areas, including policies, risks, roles and responsibilities, and finance. The existing literature lacks studies involving the comprehensive process of preparing and implementing PPP contracts associated with highway projects in the US. This research, therefore, fills this noticeable gap in the body of knowledge on the PPP delivery method. The main objective of this research was to develop a framework for PPP contracts focusing on highway projects. To meet this objective, the authors conducted a Delphi study with highway professionals to identify the major issues that they should carefully deal with during contract document preparation, contract procurement, and contract implementation phases to make PPP highway projects successful. The Delphi study consisted of two rounds, with 25 open-ended interview questions over three phases. The study found that highway agencies must fix the scope of a project before a PPP project starts. They should also choose a lump sum contract type and a design-build-finance-operate-maintenance PPP type with a 35 to 40-year concession period for highway projects. Contracts should consist of incentive and disincentive clauses along with availability payments as the mode of compensating concessioners for their work. Before initiating a PPP contract, agencies should make sure that their state legislation allows this type of contract. The study also found that during the contract procurement phase, owners should use the best-value selection method to choose a PPP contractor; the competition should be fair and transparent, and the owner must have expertise in order to successfully procure PPP contracts. The experts recommended setting performance standards for PPP concessioners, performing inspections using independent third parties, and handing over condition data to maintenance personnel at the end of construction. The primary contribution of this research to the body of knowledge was to highlight the fact that each country, with the help of professional expertise and key stakeholders, background, and/or lessons learned, needs to develop a framework that lists the main issues and processes to be considered in implementing PPP highway contracts. This study presents a framework that can work nationwide, something that is missing in previous research studies. This framework can guide professionals in the transportation industry toward effective contract document preparation, procurement, and implementation of PPP highway projects in addition to giving academicians better insights to understand PPP highway projects in the US.

Incorporating Social Benefits in Concession Price Negotiation for Public–Private Partnership Contracts

Public–private partnership (PPP) has become the most popular contract agreement form for infrastructure projects. To fully enjoy the benefits of PPP contracting, the value of the concession price should be carefully determined with quantitative justification. Traditional methods of determining the value of concession price are based on the evaluation of financial indexes such as net present value and financial return on investment. However, more and more research has highlighted the importance of evaluating social benefits in decision-making due to its capability to assess not only the financial performance of the projects but also the social and environmental values. Therefore, this research innovatively investigates the role of social benefit in concession price negotiation and aims to determine the optimal concession price with a specific focus on government-pays PPPs. Following quantification of social benefits, the payoffs of project parties for concession price negotiation are modeled mathematically, and bargaining game theory is employed to explore the bargaining behaviors of project parties during negotiation. A numerical example is used to demonstrate the developed negotiation-based determination process. The data analysis results show that the proposed method can successfully determine the optimal concession price. Also, considering the monetary value of social benefits in concession price negotiation, the payoffs for the government and corporate social responsibility (CSR)–oriented concessionaire are significantly improved. When determining other critical concession parameters such as the concession period, scholars and practitioners can follow the modeling process developed in this research to incorporate social benefit into the discussion.

Portée et limite du régime juridique du partenariat public-privé en droit positif congolais

Law No. 18–016 of July 09, 2018 (Democratic Republic of Congo) on the private partnership devotes a specific legal regime to the public-private partnership contract, which, being administrative in nature, strictly takes one of four forms: concession, leasing, interested management and the partnership contract. Linked to the country's development challenges, the scope of the Congolese public-private partnership legal system is to be attractive, secure and balanced. Also, and above all, this system guarantees transparency, competition, equality and objectivity in the process of concluding a public-private partnership contract, which must go through a call for tenders. It is advisable, however, to reserve ourselves the effectiveness of the institution of the spontaneous offer insofar as the author of the offer will be subjected to the competition by the procedure of invitation to tender. It does not appear to be advantageous to him, notwithstanding the fact that he benefits from the compensation for costs incurred. The absolute non-retroactivity of the law is worrying. Indeed, without any transitional measure obliging the parties to review the public-private partnership contracts that predate this new legal regime, most of these old contracts that are currently being executed will remain leonine.

Public-private partnership in Morocco: Public service management tool, the case of the Rokhas platform and its impact on the environment

Nowadays, several countries are on a continuous quest to improve public service, and among these countries is Morocco. The latter has adopted a range of strategies to develop the public administration in general and the public service in particular, in addition, it has opted for new contractual procedures including public-private partnership contracts for the purpose of good management of the public service. The objective of our paper is to demonstrate the contribution of public-private partnership contracts on the management of public service through a Rokhas digital platform which is the result of a partnership contract between the company Ribatis (founder of the Rokhas application) and the Ministry of the Interior while taking into consideration the environmental dimension. This study is carried out through participant observation within the Ribatis company and semi-directive interviews with our target population, namely public administrations and individuals. According to the perception of users, this application has various advantages in terms of public service management and environmental protection, and like every tool, it also has a set of malfunctions to improve.

Государственно-частные партнерства в научно-технической сфере

The article discusses characteristic features of public-private partnerships (PPPs) as an instrument of public management of innovative development. It is noted that after the global financial crisis of 2008–2009, strategic PPPs play an increasingly important role in the implementation of large-scale research and technical programs and projects. They are characterized by a focus on solving long-term issues of innovative and socio-economic development, long implementation periods and significant scale, an emphasis on the development of critical technologies, complexity and expansion of functions of a public partner, as well as high risks of research and development. There are two types of such partnerships – institutional (Joint Technology Initiatives) and contractual. Both of these types are formed based on the European Technology Platforms, however, institutional partnerships involve formation of a legal entity, and contractual PPPs are formed based on agreements between the European Commission and industry associations. It is argued that a variety of forms and types of PPPs, in which public entities and corporations, research and educational institutions, and innovative small and medium-sized companies participate, can contribute to solving the priority tasks of Russia’s innovative development. To do this, first of all, it is necessary to amend the current legislation, which lacks norms regulating general principles and rules for the formation and functioning of PPPs in science and technology sectors. Russia’s regulations contain an extremely narrow definition of the purpose and objects of PPP agreements. The goals are not related to the public innovation policy, and the objects are represented by a closed list of 21 objects, which, with the exception of computer programs and databases, belong to technological complexes of real estate and transport infrastructure. According to the authors, adoption of such a legal act will contribute to implementation of the key national programs, projects and initiatives and boost innovation development of the country.

Exploring the major causes of PPP project failures - a survey

Over the last decade, there has been a growing incidence of public-private partnerships (PPPs) project failures leading to a wave of 'remunicipalisations' around the globe. Past studies on the subject of PPP failures have been mainly case studies, critical reviews and government reports. The views of PPP practitioners on causes of PPP failures has rarely been sought, a gap which this study seeks to fill. A survey questionnaire was used to collect data from PPP practitioners across public/private sectors. The results of the study found, using exploratory factor analysis and Monte Carlo parallel analysis, that the major causes of PPP failures include poor regulation, macroeconomic crisis, contractor bankruptcy, poor public sector skills and public opposition. The findings will help governments design more sustainable PPP contracts in order to prevent financial losses to stakeholders including governments, private sector, investors and taxpayers, resulting from cancelled PPP projects.

Econometric models - a method for examining factors of implementation of public-private partnership projects in selected European countries

Modern science is based on the study of economic phenomena and tries to quantify them in a measurable way. Econometric models are used for this purpose. The object of this research was to develop econometric models that show the strength of the influence of various factors on the implementation of public-private partnership (PPP) projects in the area of transport infrastructure in France, GB, Germany, the Netherlands and Belgium. The models express the dependence of the value and number of PPP contracts on the value of measurable PPP success factors. Projects with a value of at least EUR40 million were included. A linear model and seven models transformable to linear were used. Four groups of factors were considered as explanatory variables. Fourteen indicators were obtained. Principal components determined based on covariance and correlation matrices were also used. The best models for the number of PPP contracts are linear and hyperbolic I models. For the value of contracts - linear and hyperbolic I and logarithmic models. The best models were indicated taking into account the type of explanatory variables and regardless of the type of explanatory variables. Nine criteria were used to assess the quality of the models. Factors having a significant impact on the value and number of PPP models were identified from the best models. Factors having no significant influence were also indicated.

Public-Private Partnership Contracts and Projects and their Infl uence on the Local Economy Development in Serbia

Public-private partnership (PPP) is a relatively new legal institute and financing model in the legal system of the Republic of Serbia, which was created only after the adoption of the Law on Public-Private Partnership and Concessions in 2011. The basic elements of PPP are contracts and projects. When it comes to contracts, the legal nature of the public contract on PPP is still not sufficiently clarified. Although this contract has elements of an administrative contract, it still does not follow from legislation in Serbia. Therefore, in the future, special attention should be paid to harmonizing the regime of this contract with the regime of administrative contracts established in the Law on General Administrative Procedure. On the other hand, after ten years, PPP projects in Serbia are becoming an increasingly important instrument of local economic development. Until July 2022, the Commission for PPP of the Government of the Republic of Serbia gave a positive opinion for 227 public-private partnership projects. We will present why the legal nature of the public contract on PPP is important and how PPP projects encourage local economic development in the Republic of Serbia.