Renegotiation of Transportation Public-Private Partnerships: The US Experience

Jonathan Gifford, Lisardo Bolaños and Nobuhiko Daito
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Jonathan Gifford: George Mason University
Lisardo Bolaños: George Mason University
Nobuhiko Daito: George Mason University

No 2014/16, International Transport Forum Discussion Papers from OECD Publishing

Abstract: Public-private partnerships (P3s) typically rely on long-term contracts between participants. When conditions arise that fall outside the expectations embodied in the contract, one party may seek to renegotiate the contract terms. Globally, the frequency of P3 contract renegotiations has been sufficient to raise questions regarding why these events occur and what their consequences are for the projects and society. The literature highlights four relevant causes behind renegotiation occurrences: unexpected exogenous changes, the complexity of the contractual relationship, winner´s curse and rent seeking behavior. This study examines the US experience with highway P3 renegotiations, including four types of event: contract modifications, defaults, bankruptcies and buyouts. While the US highway P3 market has grown gradually, failure to understand renegotiations and their potential consequences may dampen the market and adversely affect national infrastructure investment efforts. The analysis finds that insufficient evidence exists to disentangle the drivers of renegotiation in the US, although exogenous changes and contractual relationship complexity appear to be paramount. The analysis highlights the distinct political and institutional environment that shapes highway P3 renegotiations in the US, suggesting the need for continuing and sensible analysis to effectively manage the undesirable consequences of renegotiations.

Date: 2014-12-01
New Economics Papers: this item is included in nep-ppm and nep-tre
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