Optimal readjustment of contract variables and the financial outcome of PPP projects in the operation period

Alireza Sharafi, Mohsen Sadegh Amalnick and Ata Allah Taleizadeh

Construction Management and Economics, 2022, vol. 40, issue 2, 87-103

Abstract: Contract readjustment and renegotiation are inevitable in PPP projects. Tolls, concession length, and government subsidies are the three main variables that provide a set of Pareto payoffs for the private sector and the government during the operation period. This study provides a bargaining approach based on game theory to fairly determine the payoff parties and optimally readjust the contract variables. Unlike previous studies, this model provides a unique optimal solution in all three negotiation areas including Pareto-compensation bargaining, Pareto-improving bargaining, and Pareto-sharing bargaining. The results indicate that the initial forecast range of private profit and expected payoff parties based on the actual performance have significant impacts on the final output. Contrary to popular belief, receiving a higher guarantee from the government in the contract can lead to a reduction in the private's share during the operation period, if excess profits are made. Similarly, reducing the profit cap in the contract can benefit the private sector in the case of a profit shortfall. This model can support strategic renegotiations and provide a fair and optimal structure to readjust contract variables which will facilitate and expedite the decision-making process.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/01446193.2021.2007536 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:conmgt:v:40:y:2022:i:2:p:87-103

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RCME20

DOI: 10.1080/01446193.2021.2007536

Access Statistics for this article

Construction Management and Economics is currently edited by Will Hughes

More articles in Construction Management and Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().