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Time Overruns in Public Procurement and Concession contracts: penalty fee and option value to delay

Author

Listed:
  • Chiara D'Alpaos

    (University of Padua)

  • Sergio Vergalli

    (University of Brescia and FEEM)

Abstract

Evidence from ongoing procurement and concession contracts shows that time overruns are widespread. Two key elements, among others, can affect the delays in the execution of the contracts: a) uncertainty over production costs; b) inefficiency in the judicial system. In this article we summarize a couple of works (D'Alpaos et al., 2013 and D'Alpaos and Moretto, 2013), in which the authors theoretically and empirically investigate some causes of time overruns in public procurement and concession contracts and determine the trade-off between the supplier’s option value to delay and the penalty fee to be paid in the event of delay. The main results are tested on Italian public procurement data and show that the supplier's incentive to delay is greater the higher the volatility of production costs and the lower the "efficiency" of the judicial system.

Suggested Citation

  • Chiara D'Alpaos & Sergio Vergalli, 2014. "Time Overruns in Public Procurement and Concession contracts: penalty fee and option value to delay," Review of Environment, Energy and Economics - Re3, Fondazione Eni Enrico Mattei, March.
    • Handle: RePEc:fem:femre3:2014.03-02
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    Citations

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    Cited by:

    1. Eduard Calvo & Ruomeng Cui & Juan Camilo Serpa, 2019. "Oversight and Efficiency in Public Projects: A Regression Discontinuity Analysis," Management Science, INFORMS, vol. 65(12), pages 5651-5675, December.
    2. Reza Hesarzadeh, 2020. "Regulatory oversight and managerial ability," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 559-585, December.

    More about this item

    Keywords

    Procurement and Concession Contracts; Option Value to Delay; Strategic time overruns;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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