Risk Management in Transport PPP Projects
In the Islamic Countries
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The political framework may also contribute to renegotiations. As reported by Domingues and
Zlatkovic (2014), several empirical studies detected how the electoral cycle incentivizes the use
of PPP before elections to guarantee re-election. In these cases, renegotiation tends to occur in
the very first period after the elections have taken place, due to factors such as corruption, lack
of social acceptability of the project’s features, or the willingness to increase expenditure levels.
As mentioned, opportunistic behavior may also drive the private party to seek for
renegotiations. This can take place in case of a highly competitive tendering, by making loss-
making offers that could be adjusted in the future through renegotiation of the contract terms.
Vice versa, in a less competitive market such as the one of transport infrastructures, public
authorities can be tempted to alter priorities to accommodate private finance, at the cost of
reducing the overall validity of a PPP project or program (OECD, 2014). An effective political and
regulatory framework is crucial to avoid any amendment to the PPP contract during execution
of the project that is driven by opportunistic behavior.
A setting characterized by opportunistic behaviors and unilateral contract amendments or
arbitrary decisions by the procuring authority undermines the partnership rationale of PPPs, it
violates the legitimate expectations of the private partners, and puts future PPP projects in
jeopardy.
OECD (2014) reports specific measures on the regulatory framework carried out as a result of
lessons learned from experience in renegotiations. Among such measures, there are:
 release of PPP contract conditions in detail on a public website;
 establishment of a PPP delivery unit independent from the line Ministry to
control/regulate PPP contracts;
 referral to a sectoral regulator for contract templates and review of PPP contracts;
 disuse of clauses providing for adjustments to preserve 'financial equilibrium';
 a freeze period for renegotiations for the first 3 years of the PPP.
In order to mitigate the risk of opportunistic behaviors, a concrete measure consists is the
appointment of an independent regulator capable of supervising contract design and overseeing
the renegotiation process. As regards the private party instead, the OECD suggests as a
mitigation measure a system of reputation tracking, in the form of contractor performance
benchmarking. An additional solution may be to design the procurement process in such a way
as to disincentivize over-aggressive bids and unsustainable offers, which contribute
considerably to the need for renegotiation.
3.2.6. End of contract
The sixth and last phase of the conceptual framework, End of contract, is divided into two
elements, i.e. Contract return and Follow up. For both of them, the following Table sets out the
relevant questions that guided the analysis throughout the study.