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Life-Cycle Contracts in public procurement

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Abstract

Efficiency of the public sector production is a key issue for the public administration. One of the most popular ways to reach it is a competitive bidding. As far as infrastructure objects are concerned, governments around the world have increasingly used private firms in developing, financing, constructing, and maintaining them. Over the last two decades traditional procurement in this field evolved in public-private partnerships (PPPs) of Design-Build-Finance-Operate type, or life-cycle contracts. These contracts help to solve some problems attributed to traditional procurement. In the first section of the article we focus on the characteristics of PPPs and evaluate benefits and costs for all the participants. The main gain for the government and consumers is in using the competition mechanism and getting the public good of high quality. Since the private firm will not only construct but maintain the object during its life cycle, it is motivated to use new technologies and innovations to decrease future operational costs. The firm in its turn is secured against the risk of insufficient demand and of not getting regular payments from the government. The next section is devoted to the developed countries experience of applying life-cycle contracts and literature review. Despite obvious advantages some EC countries suggest that not all PPPs are well-managed, and therefore may not deliver expected benefits. These contacts can be inflexible in respect to changing needs of the public sector, lengthy, complex, and costly for the participants. One of the subsections deals with the transition economies that demonstrate the lack of an appropriate legal framework, economic and political instability, higher risks, etc. In conclusion we discuss the perspectives for the Russian government to implement life-cycle contracts in public projects.

Suggested Citation

  • Natalya Rakuta, 2015. "Life-Cycle Contracts in public procurement," Public administration issues, Higher School of Economics, issue 2, pages 53-78.
    • Handle: RePEc:nos:vgmu00:2015:i:2:p:53-78
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