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In Build-Operate-Transfer (BOT) infrastructure projects, host governments often provide subsidies, guarantees or alternative forms of support as incentives to attract private sector participation. A guaranteed level of minimum revenue, for example, can be specially designed to alleviate the concern of demand risk. Although researchers have generally acknowledged the significance of subsidies and guarantees leading toward successful negotiation, there is a lack of attempt to evaluate these concessions quantitatively. Without a deeper understanding of the value of these concessions, risk and reward may not be equitably matched in the proposed terms and arrangements. In this paper, relevant elements of a contractual package are treated as a form of real options. A proposition is put forward to incorporate the value of such options into the negotiation framework. By relying on simplifying assumptions on risk preferences, these options can be evaluated using Monte Carlo simulation of a discounted cash flow (DCF) model. The methodology is applied to the case of the Malaysia-Singapore Second Crossing, which shows that the value of a guarantee can indeed be significant relative to the basic net present value. The case study also highlights other aspects of flexibility in the design and execution of a project.Build-operate-transfer, concessions, infrastructure projects, negotiation, real option,

Public infrastructure owners are increasingly soliciting BOT arrangements to deliver needed infrastructure facilities. Such arrangements potentially preserve a public owner's capital capacity for allocation to projects that cannot support themselves by essentially 'pulling' projects from the private sector. Before soliciting these arrangements, however, owners should independently evaluate a project's economic viability to fully appraise the issues and variables involved. Unfortunately, project analysts often apply evaluation methods without regard for their assumptions and limitations. A case study of a toll road project in the USA provides the basis for examining the assumptions behind both traditional and option valuation models. The case demonstrates the use of an option pricing model to augment traditional project evaluation by capturing strategic considerations, in this case the value of project deferment. The presentation illustrates that the selection of a valuation model depends critically upon the characteristics of a project's variables and that informed judgment remains an integral part of the decision-making process.Valuation techniques, infrastructure investments, real options, risk neutrality,

The many transitory changes in China have raised the intensity level of competition among construction firms. Despite having a high growth economy, some construction firms continue to suffer from low profitability. Meanwhile, practical cases and empirical findings related to Chinese construction firms remain lacking. This research develops a conceptual model for improving the competitiveness of large construction firms in China. The model integrates two main streams of strategic management theories—the industrial organisation theories, and the resource-based and competence-based views. Critical variables that form the model are initially identified from an environmental analysis and the case studies of 12 large Chinese construction companies. The relationships between competitive strategies, important resources and competencies, and competitive advantage are then verified using survey results. The statistical findings suggest that two strategies—differentiation and market/product diversification, and three important resources and competencies—technological innovative capabilities, financial capabilities and guanxi (relationship), directly affect firm performance as measured by revenue and profit growth.China, competence, competitiveness, construction companies, strategic analysis,

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