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Risk allocation and incentives for private contractors: an analysis of Italian project financing contracts

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  • Rosalba Cori

    ()
    (Presidenza del Consiglio dei Ministri)

  • Cristina Giorgiantonio

    ()
    (Bank of Italy)

  • Ilaria Paradisi

    ()
    (Presidenza del Consiglio dei Ministri)

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    Abstract

    Based on the economic literature and international comparison, the paper examines the adequacy of the terms of Italian project financing contracts to build and operate public works, and identifies potential areas for improvement. We analyze the main contractual content of the public works construction and management concessions submitted to the Project Financing Technical Unit with a view to monitoring public-private contract partnerships. Overall, the analysis reveals the backwardness of the Italian system and the existence of not insignificant problem areas. The survey supports the need to foster adequate standardization of contracts in Italy aimed, in particular, at ensuring: i) the provision of more appropriate mechanisms for the employment of penalties for breach of contract by the concessionaire, especially in the management phase, and – conversely – of reward mechanisms; ii) the inclusion of clauses relative to the sharing of financing documents by the contracting authorities; iii) appropriate attention to the quantitative elements of the business plan; and iv) the strengthening of supervisory activity of the grantor during the various phases of the contract.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/quest_ecofin_2/QF_82/QEF_82.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 82.

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    Date of creation: Dec 2010
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    Handle: RePEc:bdi:opques:qef_82_10

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    Web page: http://www.bancaditalia.it
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    Related research

    Keywords: project financing; regulation; risk allocation;

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    1. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 15 Feb 2013.
    2. Elisabetta Iossa & Federico Antellini Russo, 2008. "Potenzialità e criticità del Partenariato Pubblico Privato in Italia," Rivista di Politica Economica, SIPI Spa, vol. 98(3), pages 125-158, May-June.
    3. Kappeler, Andreas & Nemoz, Mathieu, 2010. "Public-Private Partnerships in Europe - Before and During the Recent Financial Crisis," Economic and Financial Reports 2010/4, European Investment Bank, Economics Department.
    4. Gregory Lewis & Patrick Bajari, 2011. "Procurement Contracting With Time Incentives: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1173-1211.
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