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Anh Tuan, B L, Tesfamariam, M G, Chen, Y, Hwang, C, Lin, K and Young, M (2014) Production of Lightweight Aggregate from Sewage Sludge and Reservoir Sediment for High-Flowing Concrete. Journal of Construction Engineering and Management, 140(05).

Anjaneyappa, V, Amarnath, M S and Srinivasamurthy, B R (2014) Compacting Characteristics of Light Compacting Equipment. Journal of Construction Engineering and Management, 140(05).

Dadi, G B, Goodrum, P M, Taylor, T R B and Carswell, C M (2014) Cognitive Workload Demands Using 2D and 3D Spatial Engineering Information Formats. Journal of Construction Engineering and Management, 140(05).

Heravi, G and Jafari, A (2014) Cost of Quality Evaluation in Mass-Housing Projects in Developing Countries. Journal of Construction Engineering and Management, 140(05).

Hu, D and Mohamed, Y (2014) Simulation-Model-Structuring Methodology for Industrial Construction Fabrication Shops. Journal of Construction Engineering and Management, 140(05).

Type: Journal Article
Keywords: Build/Operate/Transfer; Infrastructure; Private sector; Build-operate-transfer; Performance bond; Real option; Infrastructure privatization; Valuation; Concession contract;
ISBN/ISSN: 0733-9364
URL: https://doi.org/10.1061/(ASCE)CO.1943-7862.0000821
Abstract:
This study assesses the effect of performance bonding on the valuation of a build-operate-transfer (BOT) project by extending the classical Black-Scholes-Merton (BSM) call option model. As common features in BOT contracts, a performance bond is a penalty imposed on concessionaires who exercise contractual rights to terminate participation in a project. In the real-option context, termination rights grant concessionaires the flexibility in managing market uncertainties that can increase the valuation of an infrastructure project, but the penalty impairs this flexibility and reduces valuations. A case study numerically illustrates the BSM model and indicates that performance bonding can destroy the flexibility and project valuations inherent in termination rights even when the penalty is moderate. Balancing performance bonds and termination rights is necessary because both are important in establishing and maintaining long-term contractual relationships in privatized BOT infrastructure projects.

Kim, J, Greene, M and Kim, S (2014) Cost Comparative Analysis of a New Green Building Code for Residential Project Development. Journal of Construction Engineering and Management, 140(05).

Kim, T W and Fischer, M (2014) Automated Generation of User Activity–Space Pairs in Space-Use Analysis. Journal of Construction Engineering and Management, 140(05).

Li, M, Chen, J, Xu, A, Xia, X and Wang, J (2014) Case Study of Innovative Top-Down Construction Method with Channel-Type Excavation. Journal of Construction Engineering and Management, 140(05).

Rajan, T A, Gopinath, G and Behera, M (2014) PPPs and Project Overruns: Evidence from Road Projects in India. Journal of Construction Engineering and Management, 140(05).

Sousa, V, Almeida, N M, Dias, L A and Branco, F A (2014) Risk-Informed Time-Cost Relationship Models for Sanitation Projects. Journal of Construction Engineering and Management, 140(05).

Wang, Y, Zhu, S and Wong, A S T (2014) Cooling Time Estimation of Newly Placed Hot-Mix Asphalt Pavement in Different Weather Conditions. Journal of Construction Engineering and Management, 140(05).

Xiong, W and Zhang, X (2014) Concession Renegotiation Models for Projects Developed through Public-Private Partnerships. Journal of Construction Engineering and Management, 140(05).