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Bayraktar, M E, Arif, F, Ponder, D, Prozzi, J and Mahmoud, N V (2016) Opportunities for Value Extraction Projects in Highway Rights-of-Way and Development of Feasibility Assessment Tool. Journal of Construction Engineering and Management, 142(08).
da Rocha, C G, Kemmer, S L and Meneses, L (2016) Managing Customization Strategies to Reduce Workflow Variations in House Building Projects. Journal of Construction Engineering and Management, 142(08).
González-Jorge, H, Martínez Sánchez, J, Díaz-Vilariño, L, Puente, I and Arias, P (2016) Automatic Registration of Mobile LiDAR Data Using High-Reflectivity Traffic Signs. Journal of Construction Engineering and Management, 142(08).
Hajifathalian, K, Howell, G, Wambeke, B W, Hsiang, S M and Liu, M (2016) “Oops” Simulation: Cost–Benefits Trade-Off Analysis of Reliable Planning for Construction Activities. Journal of Construction Engineering and Management, 142(08).
Hanna, A S, Ibrahim, M W, Lotfallah, W, Iskandar, K A and Russell, J S (2016) Modeling Project Manager Competency: An Integrated Mathematical Approach. Journal of Construction Engineering and Management, 142(08).
Hwang, S, Park, M, Lee, H and Lee, S (2016) Hybrid Simulation Framework for Immediate Facility Restoration Planning after a Catastrophic Disaster. Journal of Construction Engineering and Management, 142(08).
Love, P E D, Teo, P, Morrison, J and Grove, M (2016) Quality and Safety in Construction: Creating a No-Harm Environment. Journal of Construction Engineering and Management, 142(08).
Luo, X, Li, H, Huang, T and Skitmore, M (2016) Quantifying Hazard Exposure Using Real-Time Location Data of Construction Workforce and Equipment. Journal of Construction Engineering and Management, 142(08).
Nassar, N and AbouRizk, S (2016) Introduction to Techniques for Resolving Project Performance Contradictions. Journal of Construction Engineering and Management, 142(08).
Singhaputtangkul, N and Zhao, X (2016) Applying a Fuzzy Consensus Scheme to Enhance the Group Decision Making of a Building Envelope Design Team. Journal of Construction Engineering and Management, 142(08).
Tymvios, N and Gambatese, J A (2016) Direction for Generating Interest for Design for Construction Worker Safety—A Delphi Study. Journal of Construction Engineering and Management, 142(08).
Weidman, J, Dickerson, D E and Koebel, C T (2016) Effective Intervention Strategy to Improve Worker Readiness to Adopt Ventilated Tools. Journal of Construction Engineering and Management, 142(08).
Xiong, W and Zhang, X (2016) The Real Option Value of Renegotiation in Public–Private Partnerships. Journal of Construction Engineering and Management, 142(08).
- Type: Journal Article
- Keywords: Public-private partnerships; Renegotiation; Real options; Contracting;
- ISBN/ISSN: 0733-9364
- URL: https://doi.org/10.1061/(ASCE)CO.1943-7862.0001130
- Abstract:
Public–private partnerships (PPP) are contracts with a long-lasting period, huge relationship-specific investment, and great uncertainties. In many PPP projects, it is difficult or even impossible to write a complete contract that specifies all contingencies, so a renegotiation-allowed contract could be better than a renegotiation-proof one. Under a renegotiation-allowed PPP agreement, renegotiations can significantly influence the interests of both the private party and the government, so they have to evaluate the benefit and cost of renegotiations ex ante and consider them in the tender price. This study considers renegotiations as real options that are embodied to provide flexibilities for PPP contracts, and develops a model to capture the value of renegotiation based on real option theory. The model is proposed in three steps, including modeling underlying risk, bargaining renegotiation payoffs, and determining real option value. An illustration case is presented to demonstrate the applicability of the model. The case study shows that if a renegotiation-allowed contract is used, then (1) contractor-led renegotiation is very likely to occur, especially at the early stage of concession while government-led renegotiation is less likely to occur, and if any, it should occur at the middle stage of concession; (2) one party could use opportunistic renegotiation to hold the other party up and ask for excessive compensation, so renegotiations must be regulated; and (3) renegotiation in a PPP project may have a huge real option value, and the higher the uncertainty, the higher the renegotiation value.