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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.

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File URL: http://www.transportportal.se/SWoPEc/CTS-2012-26.pdf
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Paper provided by CTS - Centre for Transport Studies Stockholm (KTH and VTI) in its series Working papers in Transport Economics with number 2012:26.

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Length: 25 pages
Date of creation: 22 Nov 2012
Date of revision:
Handle: RePEc:hhs:ctswps:2012_026
Contact details of provider: Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Web page: http://www.cts.kth.se/

References listed on IDEAS
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  1. Tadelis, Steven, 2012. "Public procurement design: Lessons from the private sector," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 297-302.
  2. 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.
  3. 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).
  4. 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.
  5. Paul Klemperer, 2000. "What Really Matters in Auction Design," Economics Series Working Papers 2000-W26, University of Oxford, Department of Economics.
  6. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  7. repec:cup:cbooks:9780521551847 is not listed on IDEAS
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