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Renegotiation

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Infrastructure Public-Private Partnerships

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Abstract

Among the main advantages of concessions (contractual PPPs) over other PPP models is the idea that the existence of a contract between the parties allows them to understand the “rules of the game”, thus avoiding discretionary behavior by regulators and preventing opportunistic behavior by either the concessionaires or governments. However, empirical evidence shows that concessions often suffer from a major shortcoming: renegotiations. A renegotiation happens when the contract fails to address present circumstances. Either the assumptions made initially are no longer accurate (traffic or consumption forecasts, cost estimates, interest rates, etc.) or one of the parties engages in unilateral contractual changes, making the original contract difficult to comply with for both parties.

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Notes

  1. 1.

    See more in Demsetz (1968b).

  2. 2.

    The OBC is a spreadsheet with all expected costs and revenues for the contract duration. It contains the forecasts of demand (that will determine the revenue) as well as the cost estimation (construction, maintenance, operation, finance, among others).

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Authors and Affiliations

  1. Department of Civil Engineering Architecture and Georesources Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal

    Carlos Oliveira Cruz

  2. Center for Management Studies Department of Engineering and Management Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal

    Rui Cunha Marques

Authors
  1. Carlos Oliveira Cruz
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  2. Rui Cunha Marques
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Cruz, C.O., Marques, R.C. (2013). Renegotiation. In: Infrastructure Public-Private Partnerships. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36910-0_5

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  • DOI: https://doi.org/10.1007/978-3-642-36910-0_5

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