Flexibility in PPP contracts – Dealing with potential change in the pre-contract phase of a construction project

Abstract

Public Private Partnerships (PPPs) cover a range of possible relationships between public and private parties. PPP contracts are typically used in contexts of great uncertainty, such as large construction and infrastructure projects that are realized over a longer period of time. Hence, a major challenge in PPPs is to keep construction progress cost-efficient and on schedule, under continuously changing circumstances. One way to achieve this is through clever contracting, by proactively anticipating potential change in the planning phase and providing flexible contract mechanisms that enable an effective response. The purpose of this article is to discuss potential changes and the subsequent requirement of flexibility in PPP contracts. By flexibility, we mean the ability of the contract to deal with changing circumstances. We set out to do so by studying the available literature on the subject and by analysing the case study of the Blankenburgverbinding in the Netherlands, a Design, Build, Finance and Maintain (DBFM) project that is currently in its planning phase based on 32 interviews. Our main findings are that the timely and accurate recognition of potential changes, combined with the availability of flexible coping mechanisms, provide the stakeholders with a better understanding of the challenges they face in realizing their aims in the pre-contract phase of projects. This understanding helps to better prepare a PPP contract for potential changes.

Incentive Model Based on Cooperative Relationship in Sustainable Construction Projects

“…Contracts in construction projects are inevitably incomplete mainly because arrangements are complex within dynamic project environments and high levels of uncertainty [67][68][69]. Contractual relationships are mainly based on the assumption of confrontational situations, and the level of trust is reflected in the contract documents [70].…”

Termination Fees and Contract Design in Public-Private Partnerships

“…To prove this let consider first the case where x xτ β 1 −β 2 1 β 1 − φ(x) = 0 for all x. In this case the exit-fee that makes ∂R ∂L = 0 is L W as given in (14). Now let consider the opposite case where…”

“…Based on these evidences, scholars, as well as PPP stakeholders have often called for injecting more "flexibility" in PPP deals, with the term being used to embrace contract provisions allowing parties to rapidly react to changing circumstances during the course of the agreement (Demirel et al 2017). One such provision might consist in letting the private party to early terminate the project if it turns out to be loss-making.…”

Developing a project sustainability index for sustainable development in transnational public–private partnership projects

“…Comparing with government, private sectors are considered to have the ability to adapt to new environment or situations quickly. Being prepared to manage changes will reduce future difficulties regarding the contract arrangement and make the TPPP project more sustainable (Demirel, Leendertse, Volker, & Hertogh, 2017).…”