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Flexibility in PPP contracts – Dealing with potential change in the pre-contract phase of a construction project

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  • Hatice Çiğdem Demirel
  • Wim Leendertse
  • Leentje Volker
  • Marcel Hertogh

Abstract

Public Private Partnerships (PPPs) cover a range of possible relationships between public and private parties. PPP contracts are typically used in contexts of great uncertainty, such as large construction and infrastructure projects that are realized over a longer period of time. Hence, a major challenge in PPPs is to keep construction progress cost-efficient and on schedule, under continuously changing circumstances. One way to achieve this is through clever contracting, by proactively anticipating potential change in the planning phase and providing flexible contract mechanisms that enable an effective response. The purpose of this article is to discuss potential changes and the subsequent requirement of flexibility in PPP contracts. By flexibility, we mean the ability of the contract to deal with changing circumstances. We set out to do so by studying the available literature on the subject and by analysing the case study of the Blankenburgverbinding in the Netherlands, a Design, Build, Finance and Maintain (DBFM) project that is currently in its planning phase based on 32 interviews. Our main findings are that the timely and accurate recognition of potential changes, combined with the availability of flexible coping mechanisms, provide the stakeholders with a better understanding of the challenges they face in realizing their aims in the pre-contract phase of projects. This understanding helps to better prepare a PPP contract for potential changes.

Suggested Citation

  • Hatice Çiğdem Demirel & Wim Leendertse & Leentje Volker & Marcel Hertogh, 2017. "Flexibility in PPP contracts – Dealing with potential change in the pre-contract phase of a construction project," Construction Management and Economics, Taylor & Francis Journals, vol. 35(4), pages 196-206, April.
    • Handle: RePEc:taf:conmgt:v:35:y:2017:i:4:p:196-206
    DOI: 10.1080/01446193.2016.1241414
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    References listed on IDEAS

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    1. Elisabetta Iossa & Giancarlo Spagnolo & Mercedes Vellez, 2014. "The Risks and Tricks in Public–Private Partnerships," World Scientific Book Chapters, in: Martin Peitz & Yossi Spiegel (ed.), THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 16, pages 455-489, World Scientific Publishing Co. Pte. Ltd..
    2. Warwick McKibbin & Timo Henckel, 2010. "The Economics of Infrastructure in a Globalized World: Issues, Lessons and Future Challenges," CAMA Working Papers 2010-39, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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    1. Marco Buso & Cesare Dosi & Michele Moretto, 2021. "Do exit options increase the value for money of public–private partnerships?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 721-742, November.
    2. Jin, Hongyu & Liu, Shijing & Sun, Jide & Liu, Chunlu, 2021. "Determining concession periods and minimum revenue guarantees in public-private-partnership agreements," European Journal of Operational Research, Elsevier, vol. 291(2), pages 512-524.
    3. Mengyuan Cheng & Guoliang Liu & Yongshun Xu & Ming Chi, 2021. "Enhancing Trust Between PPP Partners: The Role of Contractual Functions and Information Transparency," SAGE Open, , vol. 11(3), pages 21582440211, August.
    4. Marco Buso & Cesare Dosi & Michele Moretto, 2018. "Termination Fees and Contract Design in Public-Private Partnerships," "Marco Fanno" Working Papers 0227, Dipartimento di Scienze Economiche "Marco Fanno".
    5. Huige Xing & Yuelin Li & Hongyang Li, 2020. "Renegotiation Strategy of Public-Private Partnership Projects with Asymmetric Information—An Evolutionary Game Approach," Sustainability, MDPI, vol. 12(7), pages 1-23, March.

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