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Securing a Better Deal From Investors in Public Infrastructure Projects

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  • Veronica Vecchi
  • Mark Hellowell

Abstract

The return on capital is a major contributor to the cost of design, build, finance and operate (DBFO) contracts, under which public infrastructure is financed and delivered by private companies. The article presents a method for evaluating the rates of return targeted by bidders and applies this to 10 contracts commissioned by the UK National Health Service. The presence of significant excess returns is identified in each case. We argue that, if the rate of return projected by an investor exceeds a benchmark cost of capital, derived using standard capital budgeting techniques, then a reduction in the fee to be paid by the public authority is justified.

Suggested Citation

  • Veronica Vecchi & Mark Hellowell, 2013. "Securing a Better Deal From Investors in Public Infrastructure Projects," Public Management Review, Taylor & Francis Journals, vol. 15(1), pages 109-129, January.
    • Handle: RePEc:taf:pubmgr:v:15:y:2013:i:1:p:109-129
    DOI: 10.1080/14719037.2012.686232
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    References listed on IDEAS

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    1. G. Dudkin & T. Välilä, 2006. "Transaction Costs in Public-Private Partnerships: A First Look at the Evidence," Competition and Regulation in Network Industries, Intersentia, vol. 7(2), pages 307-331, June.
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    Cited by:

    1. A. Garcia-Bernabeu & F. Mayor-Vitoria & F. Mas-Verdu, 2015. "Project Finance Recent Applications and Future Trends: The State of the Art," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 14(2), pages 159-178, December.
    2. Colla, Paolo & Hellowell, Mark & Vecchi, Veronica & Gatti, Stefano, 2015. "Determinants of the cost of capital for privately financed hospital projects in the UK," Health Policy, Elsevier, vol. 119(11), pages 1442-1449.
    3. Spohr, Jonas & Wikström, Kim & Ronikonmäki, Niko-Matti & Lepech, Michael & In, Soh Young, 2024. "Are private investors overcompensated in infrastructure projects?," Transport Policy, Elsevier, vol. 152(C), pages 1-8.

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