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Using a self-selection mechanism for tendering in the construction industry: A case study of railway renewal contracts

Author

Listed:
  • Nilsson, Jan-Eric

    (Swedish National Road & Transport Research Institute (VTI))

  • Odolinski, Kristofer

    (Swedish National Road & Transport Research Institute (VTI))

  • Nyström, Johan

    (NYFOU)

Abstract

One of the consequences of the institutional separation of railway infrastructure from train operations in Europe is a misalignment of incentives in which the actions of one party may create costs for the other. To internalise otherwise external costs of track-works experienced by train operators and customers, it is essential to reform the way in which project contracts are tendered. This study suggests a self-selection mechanism for tendering rail infrastructure activities. Bidders may therefore submit bids based on the industry’s standard Unit Price Contract or a Fixed-Price Contract. The mechanism is designed to increase the possibility for a welfare maximising trade-off between construction and user costs. Using standard Benefit-Cost principles and parameter values, a case study where five switches are replaced provides substance to the discussion. The study provides a starting point for addressing risk in the construction industry and a blueprint for further development by professionals to fill in gaps and to test the approach under a controlled format before full-scale implementation.

Suggested Citation

  • Nilsson, Jan-Eric & Odolinski, Kristofer & Nyström, Johan, 2023. "Using a self-selection mechanism for tendering in the construction industry: A case study of railway renewal contracts," Working Papers 2023:10, Swedish National Road & Transport Research Institute (VTI).
    • Handle: RePEc:hhs:vtiwps:2023_010
    as

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    File URL: https://www.transportportal.se/VTISWoPEc/VTI%202023%2010.pdf
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    References listed on IDEAS

    as
    1. Nash, Chris & Smith, Andrew & Crozet, Yves & Link, Heike & Nilsson, Jan-Eric, 2019. "How to liberalise rail passenger services? Lessons from european experience," Transport Policy, Elsevier, vol. 79(C), pages 11-20.
    2. Mandell, Svante & Nilsson, Jan-Eric, 2010. "A Comparison of Unit Price and Fixed Price Contracts for Infrastructure Construction Projects," Working Papers 2010:13, Swedish National Road & Transport Research Institute (VTI).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Procurement; Risk; Rail infrastructure; Vertical separation; Delay fee; Unit price contract; Fixed-price contract;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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