Determining concessionary items for “availability payment only” PPP projects: a holistic framework integrating value-for-money and social values
Abstract
Public-private partnerships (PPPs) have been widely applied in infrastructure development around the world. However, reasonable concessionary items are critical to compromise interest conflicts between government agencies and sponsors to ensure project success. A broad literature review centering on PPP transaction structuring revealed two significant research gaps: (1) a lack of attention to the ‘availability payment only’ (APO) funding method and (2) negligence of the public side’s perspective in determining concessionary items. The research objective was to develop a methodological framework for determining concessionary items in APO PPP projects while considering the interests of the public side. This study proposed a value-for-money (VFM) and social values integrated framework which accommodates discounted cash flow (DCF) analysis, bargaining game modeling, and multi-objectives decision-making (MODM). This framework enables a decision-making process based on both an indifferent feasible interval of concessionary items under a discount rate agreed upon by both parties and an optimal set of concessionary items. Additionally, results of a sensitivity analysis indicated that project construction profit can significantly affect feasible and optimal concession items, and the optimal concession period is less sensitive to changes in risk allocation. The application of proposed model indicated that this paper successfully provides a methodology for determining a feasible interval and an optimal concession items group tailored to APO PPP projects. This study paves the way towards a platform for the public and private partners to jointly and quickly come up with sound PPP concessional items in light of the win-win principle, particularly under the APO funding mechanism.
Keyword : public–private partnerships, value allocation, optimal concessionary items determination, VFM and social value integration, availability payment only (APO), multi-objectives decision-making (MODM), bargaining game model
How to Cite
Guo, Y., Chen, C., Luo, X., & Martek, I. (2024). Determining concessionary items for “availability payment only” PPP projects: a holistic framework integrating value-for-money and social values. Journal of Civil Engineering and Management, 30(2), 149–167. https://doi.org/10.3846/jcem.2024.20841
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Carbonara, N., Costantino, N., & Pellegrino, R. (2014). Concession period for PPPs: A win–win model for a fair risk sharing. International Journal of Project Management, 32(7), 1223–1232. https://doi.org/10.1016/j.ijproman.2014.01.007
China Public Private Partnerships Center. (2022). Monthly report of national PPPs projects development in China. https://www.cpppc.org/jb/1002596.jhtml
Cui, C., Wang, J., Liu, Y., & Coffey, V. (2019). Relationships among value-for-money drivers of public–private partnership infrastructure projects. Journal of Infrastructure Systems, 25(2), Article 04019007. https://doi.org/10.1061/(ASCE)IS.1943-555X.0000479
Farquharson, E., & Yescombe, E. (2011). How to engage with the private sector in public-private partnerships in emerging markets. World Bank Publications. https://doi.org/10.1596/978-0-8213-7863-2
Feng, K., Wang, S., Li, N., Wu, C., & Xiong, W. (2018). Balancing public and private interests through optimization of concession agreement design for user-pay PPP projects. Journal of Civil Engineering Management, 24(2), 116–129. https://doi.org/10.3846/jcem.2018.455
Feng, Z., Song, J., Yang, X., & Guo, R. (2023). Contractual flexibility, firm effort, and subsidy design: A comparison of PPP project contracts. European Journal of Operational Research, 307(1), 484–496. https://doi.org/10.1016/j.ejor.2022.09.018
Glendinning, R. (1988). The concept of value for money. International Journal of Public Sector Management, 1(1), 42–50. https://doi.org/10.1108/eb002926
Guo, Y., Su, Y., Chen, C., & Martek, I. (2023). Inclusion of “managing flexibility” valuations in the pricing of PPP projects: a multi-objective decision-making method. Engineering, Construction and Architectural Management. https://doi.org/10.1108/ECAM-07-2022-0672
HM Treasury. (2006). Value for money assessment guidance.
Islam, M. M., & Mohamed, S. (2009). Bid-winning potential optimization for concession schemes with imprecise investment parameters. Journal of Construction Engineering and Management, 135(8), 690–700. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000032
Ivanova, E., & Masarova, J. (2013). Importance of road infrastructure in the economic development and competitiveness. Economics and Management, 18(2), 263–274. https://doi.org/10.5755/j01.em.18.2.4253
Iyer, K., & Sagheer, M. (2012). Optimization of bid-winning potential and capital structure for build-operate-transfer road projects in India. Journal of Management in Engineering, 28(2), 104–113. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000071
Jin, H., & Liu, C. (2023). Incorporating social benefits in concession price negotiation for public–private partnership contracts. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 15(1), 04522040. https://doi.org/10.1061/(ASCE)LA.1943-4170.0000582
Jin, H., Liu, S., Liu, C., & Udawatta, N. (2019). Optimizing the concession period of PPP projects for fair allocation of financial risk. Engineering, Construction and Architectural Management, 26(10), 2347–2363. https://doi.org/10.1108/ECAM-05-2018-0201
Jin, H., Liu, S., Li, J., & Liu, C. (2020a). A game-theoretic approach to developing a concession renegotiation framework for user-pays PPPs. International Journal of Construction Management, 20(6), 642–652. https://doi.org/10.1080/15623599.2020.1738003
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