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PPPs and contract negotiations an empirical study 2004

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Construction Management and Economics (November 2004) 22, 967–978

Public–private partnerships and contract
negotiations: an empirical study
MARCUS AHADZI and GRAEME BOWLES
Heriot-Watt University, School of the Built Environment, Edinburgh EH14 4AS, UK
Received 10 July 2003; accepted 23 April 2004

Despite the increasing popularity in the use of the public–private partnership concept as a procurement
strategy, there have been reported cases of problems associated with the initial stages of the process in terms
of unduly high bidding costs and pre-contract time overruns due mainly to the protracted nature of the
negotiations. Empirical research conducted in the UK has focused on the extent of these pre-contract time and
cost overruns. The key attributes of both the private sector consortia and the public sector organizations
that have significant bearing on the efficiency of the pre-contract processes are: the nature and strength of the
consortium, the quality of the technical proposals they produce for the bid, and the quality of their financial
proposals. For the public sector organizations they are the organizational capabilities and technical capabilities.
The financial capabilities of the public sector are ranked lowest in influencing the procurement process. Whilst
there was broad agreement on the ranking of importance for the various descriptive attributes, differences
between the two sectors are revealed relating to risk, previous experience, evaluation criteria in the bidding
documents and effect of public opinion. A better understanding of what is important to each party in the
negotiations is an important step in improving the PPP process.
Keywords: Public–private partnerships, negotiation, consortium, public sector, procurement

Introduction
Public–private partnerships (PPP) are a rapidly growing
means of procuring infrastructure assets and their associated services, signalling a fundamental shift in the
relationship between the state and industry. The focus
of the paper is on the difficulties encountered during
the tendering and negotiation phase of the PPP project
procurement. Despite its international appeal, the PPP
concept including the other variants such as the BuildOwn-Operate-Transfer (BOOT) forms of procuring
public infrastructure have been accompanied by problems associated with tendering and negotiation of the
contracts between public sector clients and private
sector providers. Excessive time overruns during the
pre-contract stages ...
Construction Management and Economics (November 2004) 22, 967–978
Construction Management and Economics
ISSN 0144-6193 print/ISSN 1466-433X online © 2004 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0144619042000241471
*Author for correspondence. E-mail: M.K.Ahadzi@hw.ac.uk
Public–private partnerships and contract
negotiations: an empirical study
MARCUS AHADZI and GRAEME BOWLES
Heriot-Watt University, School of the Built Environment, Edinburgh EH14 4AS, UK
Received 10 July 2003; accepted 23 April 2004
Despite the increasing popularity in the use of the public–private partnership concept as a procurement
strategy, there have been reported cases of problems associated with the initial stages of the process in terms
of unduly high bidding costs and pre-contract time overruns due mainly to the protracted nature of the
negotiations. Empirical research conducted in the UK has focused on the extent of these pre-contract time and
cost overruns. The key attributes of both the private sector consortia and the public sector organizations
that have significant bearing on the efficiency of the pre-contract processes are: the nature and strength of the
consortium, the quality of the technical proposals they produce for the bid, and the quality of their financial
proposals. For the public sector organizations they are the organizational capabilities and technical capabilities.
The financial capabilities of the public sector are ranked lowest in influencing the procurement process. Whilst
there was broad agreement on the ranking of importance for the various descriptive attributes, differences
between the two sectors are revealed relating to risk, previous experience, evaluation criteria in the bidding
documents and effect of public opinion. A better understanding of what is important to each party in the
negotiations is an important step in improving the PPP process.
Keywords: Public–private partnerships, negotiation, consortium, public sector, procurement
Introduction
Public–private partnerships (PPP) are a rapidly growing
means of procuring infrastructure assets and their asso-
ciated services, signalling a fundamental shift in the
relationship between the state and industry. The focus
of the paper is on the difficulties encountered during
the tendering and negotiation phase of the PPP project
procurement. Despite its international appeal, the PPP
concept including the other variants such as the Build-
Own-Operate-Transfer (BOOT) forms of procuring
public infrastructure have been accompanied by prob-
lems associated with tendering and negotiation of the
contracts between public sector clients and private
sector providers. Excessive time overruns during the
pre-contract stages resulting in huge advisory cost
overruns have been reported on some of the projects
procured through the strategy (Owen and Merna, 1999;
Tam, 1999; The Herald, 2002). In fact, cost overruns
of up to 600% have been reported in some instances
(NAO, 1999a, p. 49). Earlier research, (Ahadzi and
Bowles, 2001a), identified the contract negotiation
as the critical stage during which delays are most
prominent. The current research therefore aims at:
(1) investigating the extent of these delays and their
effect on the pre-contract/bidding costs;
(2) identifying those characteristic attributes of the
private sector consortium and the public sector
client organizations that significantly influence
the successful negotiation of the PPP contracts;
and
(3) exploring the basic differences in perception
between the private sector and the public sector
clients on the relative importance of the key
attributes that influence the outcome of the
negotiation processes.
Highlighting such influencing attributes on the negotia-
tion outcomes and the perceptual differences between
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