Renegotiating Public-Private Partnerships

56 Pages Posted: 27 Feb 2016

See all articles by Joaquim Sarmento

Joaquim Sarmento

Technical University of Lisbon (UTL) - School of Economics and Management

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

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Date Written: February 25, 2016

Abstract

There is a growing concern about the frequency of renegotiations in Public Private Partnerships (PPPs). We focus our research on the Portuguese experience and study 254 renegotiation events of 35 PPP contracts since 1995, and examine the triggers of renegotiations and who initiates them. We also investigate whether both the public and private sector learn from successive renegotiations in terms of the timing of renegotiations, contract design, regulatory change, and bargaining power extraction. We show that previous experience in renegotiations reduces the likelihood of renegotiations, and that electoral cycles and political connections lead to strategic behavior of both the public and the private sectors. The bargaining power seems to be mostly held by private firms who are often able to extract the rents what they set out to get at the beginning of negotiations by starting negotiations in the year prior to elections, and especially when they built out political connections. The learning from renegotiations on the public sector’s side, in terms of contract design and execution of regulatory change seems modest.

Keywords: Public-Private Partnerships, Concessions, Renegotiations, Bargaining, Procurement

JEL Classification: G38, H54, L51

Suggested Citation

Sarmento, Joaquim and Renneboog, Luc, Renegotiating Public-Private Partnerships (February 25, 2016). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 416/2016, Available at SSRN: https://ssrn.com/abstract=2737858 or http://dx.doi.org/10.2139/ssrn.2737858

Joaquim Sarmento

Technical University of Lisbon (UTL) - School of Economics and Management ( email )

Rua Miguel Lupi, 20
Lisbon
Portugal

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
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+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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