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Contractual Flexibility

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Infrastructure Public-Private Partnerships

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Abstract

Infrastructure PPPs suffer from a major paradox. On the one hand, they are built to last several decades. During this time, several unplanned events take place, some related to the project themselves and others result from the global context in which these projects operate. On the other hand, these PPPs are, most of the time, supported by contractual arrangements that both agents intend to be as exhaustive as possible to foresee any possible contingency and to design the adequate mechanisms to address these contingencies. In fact, many of the contracts have an underlying OBC (generally included in the annexes), where it is possible to find all cash-flow projections, supported on macro-economic estimations (interest rates, inflation rates, economic growth, etc.).

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Notes

  1. 1.

    As an example, the shadow toll highways in Portugal were changed to real toll highways. To accept this renegotiation, the concessionaires required that the government assume the demand risk and pay an availability fee for the highways. This eliminated one of the major sources of uncertainty for concessionaires at the expense of the public budget.

  2. 2.

    For more on the “collar option”, see Dailami et al. (1999), Irwin (2003) and Chiara et al. (2007).

  3. 3.

    An option that can only be exercised at the expiration date is called a European option. One that can be exercised at any time until the expiration date is called an American option.

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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

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  1. Carlos Oliveira Cruz
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Cruz, C.O., Marques, R.C. (2013). Contractual Flexibility. In: Infrastructure Public-Private Partnerships. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36910-0_3

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  • DOI: https://doi.org/10.1007/978-3-642-36910-0_3

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