Procurement and contract design in the construction industry: … not one size fits all
This paper considers the choice between different approaches to contract for the construction and maintenance of infrastructure projects. The need to control for user and third party costs over the life cycle of an asset is demonstrated to be a core aspect of welfare maximising contract design. The more likely it is that a certain problem in the current infrastructure could be solved by constructing assets in alternative ways, the more strongly should the tendering agency consider innovative design alternatives such as performance contracts of Public Private Partnerships. It is also demonstrated that contracts which cover both construction and subsequent maintenance must be accompanied by bonuses and penalties for remunerating or punishing the entrepreneur for delivering (or not) appropriate infrastructure quality.
|Date of creation:||22 Nov 2012|
|Contact details of provider:|| Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden|
Web page: http://www.cts.kth.se/
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- Patrick Bajari & Steven Tadelis, 1999.
"Incentives versus Transaction Costs: A Theory of Procurement Contracts,"
99029, Stanford University, Department of Economics.
- Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
- Paul Klemperer, 2002.
"What Really Matters in Auction Design,"
Journal of Economic Perspectives,
American Economic Association, vol. 16(1), pages 169-189, Winter.
- 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).
- Milgrom,Paul, 2004.
"Putting Auction Theory to Work,"
Cambridge University Press, number 9780521551847, December.
- Tadelis, Steven, 2012. "Public procurement design: Lessons from the private sector," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 297-302.
- Nilsson Jan-Eric & Hultkrantz Lars & Karlström Urban, 2008. "The Arlanda Airport Rail Link: Lessons Learned from a Swedish Construction Project," Review of Network Economics, De Gruyter, vol. 7(1), pages 1-18, March.
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