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Options-based negotiation management of PPP–BOT infrastructure projects

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  • Meghdad Attarzadeh
  • David K.H. Chua
  • Michael Beer
  • Ernest L.S. Abbott

Abstract

The success of public–private partnership (PPP)–build–operate–transfer (BOT) projects largely depends on effectively mitigating the impact of a variety of risks and uncertainties, especially those influencing the revenue over time. Revenue instability is one of the main obstacles of PPP form of procurement. Government support, which is established as a clause in the concession agreement, should be carefully designed and well formulated. Options which arise from certain clauses in the contract are more valuable for risky projects. The purpose of this paper’s proposed model is to evaluate early fund generation options and also to calculate equitable bounds for a guaranteed revenue for the project sponsor under uncertainty and risk. The model is specially designed to alleviate the concern of revenue risk. To illustrate its applicability the methodology is then applied to a freeway PPP project and a power plant PPP project in Iran. The results show that the value of these options can indeed be significant and by applying the proposed systematic negotiation mechanism both public and private sectors can take advantage of its flexibility at the negotiation table. The proposed mechanisms can facilitate negotiations on the verge of a break down as well as accelerating ongoing negotiations that have become moribund.

Suggested Citation

  • Meghdad Attarzadeh & David K.H. Chua & Michael Beer & Ernest L.S. Abbott, 2017. "Options-based negotiation management of PPP–BOT infrastructure projects," Construction Management and Economics, Taylor & Francis Journals, vol. 35(11-12), pages 676-692, December.
    • Handle: RePEc:taf:conmgt:v:35:y:2017:i:11-12:p:676-692
    DOI: 10.1080/01446193.2017.1325962
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    References listed on IDEAS

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    1. Christopher M. Lewis & Ashoka Mody, 1998. "Contingent Liabilities for Infrastructure Projects : Implementing a Risk Management Framework for Governments," World Bank Publications - Reports 11539, The World Bank Group.
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    Cited by:

    1. Adkins, Roger & Paxson, Dean & Pereira, Paulo J. & Rodrigues, Artur, 2019. "Investment decisions with finite-lived collars," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 185-204.

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