Using a self-selection mechanism for tendering in the construction industry: A case study of railway renewal contracts

Jan-Eric Nilsson (), Kristofer Odolinski () and Johan Nyström
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Jan-Eric Nilsson: Swedish National Road & Transport Research Institute (VTI), Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden
Kristofer Odolinski: Swedish National Road & Transport Research Institute (VTI), Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden, https://www.vti.se/en/employees/employees/kristofer-odolinski
Johan Nyström: NYFOU, Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden

No 2023:10, Working Papers from Swedish National Road & Transport Research Institute (VTI)

Abstract: One of the consequences of the institutional separation of railway infrastructure from train operations in Europe is a misalignment of incentives in which the actions of one party may create costs for the other. To internalise otherwise external costs of track-works experienced by train operators and customers, it is essential to reform the way in which project contracts are tendered. This study suggests a self-selection mechanism for tendering rail infrastructure activities. Bidders may therefore submit bids based on the industry’s standard Unit Price Contract or a Fixed-Price Contract. The mechanism is designed to increase the possibility for a welfare maximising trade-off between construction and user costs. Using standard Benefit-Cost principles and parameter values, a case study where five switches are replaced provides substance to the discussion. The study provides a starting point for addressing risk in the construction industry and a blueprint for further development by professionals to fill in gaps and to test the approach under a controlled format before full-scale implementation.

Keywords: Procurement; Risk; Rail infrastructure; Vertical separation; Delay fee; Unit price contract; Fixed-price contract (search for similar items in EconPapers)
JEL-codes: H57 R42 R48 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2023-09-04
New Economics Papers: this item is included in nep-cta, nep-ppm, nep-reg and nep-tre
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