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Revisiting the strengths and limitations of regulatory contracts in infrastructure industries

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  • Marques, Rui Cunha
  • Berg, Sanford V

Abstract

This paper evaluates regulation by contract in public-private partnerships (PPPs) in infrastructure services. Although the benefits of competition for the market and of regulatory contracts are widely acknowledged, the literature indentifies several failures in their design. These ‘flaws’ are present in both developed and developing countries and arise in all types of contracts. This study analyses both short and long term contracts, focusing on purely contractual PPPs and institutionalized PPPs (mixed companies). The evidence suggests that for all kinds of contracts, the major problems tend to arise in the preparation of public tender documents: the ‘best’ bidder is not often the winner. The likely results include redistribution in favor of the private partner, weak incentives for high performance, and renegotiation of contracts. Moreover, risks are not allocated correctly nor is effective monitoring ensured. This review of contract procedures and design allows us to draw several implications for policy-makers and to present suggestions and recommendations for improving regulatory contracts.

Suggested Citation

  • Marques, Rui Cunha & Berg, Sanford V, 2010. "Revisiting the strengths and limitations of regulatory contracts in infrastructure industries," MPRA Paper 32890, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:32890
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    References listed on IDEAS

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    Cited by:

    1. Ruiz Diaz, Gonzalo, 2017. "The contractual and administrative regulation of public-private partnership," Utilities Policy, Elsevier, vol. 48(C), pages 109-121.
    2. Nuno Ferreira da Cruz & Pedro Simões & Rui Cunha Marques, 2013. "The Hurdles of Local Governments with Ppp Contracts in the Waste Sector," Environment and Planning C, , vol. 31(2), pages 292-307, April.
    3. Carvalho, João & Cruz, Nuno & Cunha Marques, Rui, 2010. "Local governments opting for PPPs in the schools sector," MPRA Paper 22558, University Library of Munich, Germany.
    4. da Cruz, Nuno F. & Marques, Rui Cunha, 2013. "Mixed companies as local utilities," LSE Research Online Documents on Economics 59761, London School of Economics and Political Science, LSE Library.
    5. Rui Domingos Ribeiro da Cunha Marques & Hugo Consci?ncia Silvestre, 2019. "Does Regulation Really Work? A Principal-agent Approach to the Portuguese Waste Services," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2019(1), pages 49-67.
    6. Ahmadabadi, Ali Akbari & Heravi, Gholamreza, 2019. "The effect of critical success factors on project success in Public-Private Partnership projects: A case study of highway projects in Iran," Transport Policy, Elsevier, vol. 73(C), pages 152-161.
    7. Miranda Sarmento, J. & Renneboog, L.D.R., 2014. "The Portuguese Experience with Public-Private Partnerships," Other publications TiSEM f25ddc4d-e3e6-4812-b527-3, Tilburg University, School of Economics and Management.
    8. Wang, Nannan & Gong, Zheng & Liu, Yunfei & Thomson, Craig, 2020. "The influence of governance on the implementation of Public-Private Partnerships in the United Kingdom and China: A systematic comparison," Utilities Policy, Elsevier, vol. 64(C).
    9. Barroco, Jose, 2021. "Designing financeable ancillary services revenue contracts in developing economies: Learnings from the Philippines," Energy Policy, Elsevier, vol. 152(C).
    10. Edwin Thomas Banobi & Wooyong Jung, 2019. "Causes and Mitigation Strategies of Delay in Power Construction Projects: Gaps between Owners and Contractors in Successful and Unsuccessful Projects," Sustainability, MDPI, vol. 11(21), pages 1-16, October.
    11. Jinbo Song & Honglian Zhang & Wanli Dong, 2016. "A review of emerging trends in global PPP research: analysis and visualization," Scientometrics, Springer;Akadémiai Kiadó, vol. 107(3), pages 1111-1147, June.
    12. Ferreira, D.C. & Marques, R.C., 2021. "Public-private partnerships in health care services: Do they outperform public hospitals regarding quality and access? Evidence from Portugal," Socio-Economic Planning Sciences, Elsevier, vol. 73(C).
    13. Berg, Sanford V. & Phillips, Michelle A., 2017. "Data availability as a key tool for regulating government-owned water utilities," Utilities Policy, Elsevier, vol. 49(C), pages 30-37.
    14. Marques, Rui Cunha, 2017. "Why not regulate PPPs?," Utilities Policy, Elsevier, vol. 48(C), pages 141-146.
    15. Andrey Berezin & Bruno S. Sergi & Natalia Gorodnova, 2018. "Efficiency Assessment of Public-Private Partnership (PPP) Projects: The Case of Russia," Sustainability, MDPI, vol. 10(10), pages 1-18, October.
    16. Bruno Eustaquio Carvalho & Rui Cunha Marques & Oscar Cordeiro Netto, 2018. "Regulatory Impact Assessment (RIA): an Ex-Post Analysis of Water Services by the Legal Review in Portugal," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 32(2), pages 675-699, January.
    17. da Cruz, Nuno F. & Marques, Rui Cunha, 2012. "Mixed companies and local governance: no man can serve two masters," LSE Research Online Documents on Economics 59778, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    regulation by contract; bidding documents; contract design; risk; monitoring;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy

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