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Aladağ, H and Işık, Z (2019) Design and construction risks in BOT type mega transportation projects. Engineering, Construction and Architectural Management, 26(10), 2223–42.

Almarri, K, Aljarman, M and Boussabaine, H (2019) Emerging contractual and legal risks from the application of building information modelling. Engineering, Construction and Architectural Management, 26(10), 2307–25.

Cajzek, R and KlanÅ¡ek, U (2019) Cost optimization of project schedules under constrained resources and alternative production processes by mixed-integer nonlinear programming. Engineering, Construction and Architectural Management, 26(10), 2474–508.

Derakhshanfar, H, Ochoa, J J, Kirytopoulos, K, Mayer, W and Tam, V W (2019) Construction delay risk taxonomy, associations and regional contexts. Engineering, Construction and Architectural Management, 26(10), 2364–88.

Fang, Y and Ng, S T (2019) Genetic algorithm for determining the construction logistics of precast components. Engineering, Construction and Architectural Management, 26(10), 2289–306.

Jin, H, Liu, S, Liu, C and Udawatta, N (2019) Optimizing the concession period of PPP projects for fair allocation of financial risk. Engineering, Construction and Architectural Management, 26(10), 2347–63.

  • Type: Journal Article
  • Keywords: Monte Carlo simulation; Concession period; Financial risk allocation; Public–private partnership;
  • ISBN/ISSN: 0969-9988
  • URL: https://doi.org/10.1108/ECAM-05-2018-0201
  • Abstract:
    Targeting public–private partnership (PPP) projects, the purpose of this paper is to help decision makers fairly allocate financial risk between governments and private investors through a properly designed length of concession period. Design/methodology/approach On the one hand, the length of the concession period should be long enough to help private investors to achieve their expected profits. On the other hand, the length of a concession period cannot be decided without agreeing on an upper limit, since an overlong concession period takes too much time for governments to recover their investment and leads to an overly lucrative condition for private investors. Following this logic, the concession period decision range is decided, which defines the lower and upper limits for the length of the concession period. The net present values (NPVs) for governments and private investors are estimated via Monte Carlo simulation to better reflect the uncertainties. To further decide on the optimal length of the concession period, the principle of fair risk allocation between governments and private investors is adopted. The concession period, as an important project parameter, should help to minimize the financial risk gap between governments and private investors. Findings The developed concession period determination process is validated using a numerical example of a PPP transportation project. The analysis outcomes show that the proposed methodology is capable of determining the length of the concession period so as to control private investors’ profit within a reasonable range while achieving a fair allocation of financial risk between governments and private investors. The outcomes also indicate that, before determining the optimal length for the concession period, governments may need to make a choice between better financial risk allocation or stringent profit control for private investors. Research limitations/implications The determination process developed here may be inapplicable to social infrastructure PPPs where the income stream is less predictable. In addition, the data analysis targets a highway project with a capital subsidy provided by the government. To strengthen the effectiveness of the proposed determination process, further research should apply the model to PPPs with other kinds of government support. Originality/value The concession period for a PPP project is an important parameter and it is a common practice for governments to predetermine the length of the concession period before inviting tenders. The existing models for determining the concession period focus too much on the simulation of NPVs for project parties and neglect the importance of risk allocation in signing and maintaining a long-term contract. There is also a lack of research to evaluate the influence of governments’ preferences on the length of the concession period. To overcome the limitations of the existing models and enrich the methodology for concession period determination, this paper contributes to the body of knowledge by developing a concession period determination process which can help governments to make better decisions. The financial risk is expected to be more evenly shared between governments and private investors with the concession period derived from the proposed process. This determination process is also capable of evaluating the influence of governments’ preferences on the length of the concession period.

Kumar Singla, H (2019) A comparative analysis of long-term performance of construction and non-construction IPOs in India. Engineering, Construction and Architectural Management, 26(10), 2447–73.

Kunieda, Y, Codinhoto, R and Emmitt, S (2019) Increasing the efficiency and efficacy of demolition through computerised 4D simulation. Engineering, Construction and Architectural Management, 26(10), 2186–205.

Kwofie, T E, Aigbavboa, C O and Machethe, S O (2019) Nature of communication performance in non-traditional procurements in South Africa. Engineering, Construction and Architectural Management, 26(10), 2264–88.

Lau, C H, Mesthrige, J W, Lam, P T and Javed, A A (2019) The challenges of adopting new engineering contract: a Hong Kong study. Engineering, Construction and Architectural Management, 26(10), 2389–409.

Loosemore, M, Sunindijo, R Y, Lestari, F, Kusminanti, Y and Widanarko, B (2019) Comparing the safety climate of the Indonesian and Australian construction industries. Engineering, Construction and Architectural Management, 26(10), 2206–22.

Oyewobi, L O, Oke, A E, Adeneye, T D and Jimoh, R A (2019) Influence of organizational commitment on work–life balance and organizational performance of female construction professionals. Engineering, Construction and Architectural Management, 26(10), 2243–63.

Qayoom, A and H.W. Hadikusumo, B (2019) Multilevel safety culture affecting organization safety performance: a system dynamic approach. Engineering, Construction and Architectural Management, 26(10), 2326–46.

Sinesilassie, E G, Tripathi, K K, Tabish, S Z S and Jha, K N (2019) Modeling success factors for public construction projects with the SEM approach: engineer’s perspective. Engineering, Construction and Architectural Management, 26(10), 2410–31.

Whang, S, Park, K S and Kim, S (2019) Critical success factors for implementing integrated construction project delivery. Engineering, Construction and Architectural Management, 26(10), 2432–46.

Xiong, B, Newton, S, Li, V, Skitmore, M and Xia, B (2019) Hybrid approach to reducing estimating overfitting and collinearity. Engineering, Construction and Architectural Management, 26(10), 2170–85.