Transaction Costs in Transport Public–Private Partnerships: Comparing Procurement Procedures

Abstract

In recent years, concern has grown over good practices in the procurement process in public–private partnerships (PPPs). The consensus view is that PPPs are prone to higher transaction costs than traditional public provision. In this paper, we contrast the hypothesis that transaction costs in transport PPPs depend, to a large extent, on the procurement mechanism used in each case, comparing the Negotiated and the Open procedures. Given that PPPs may offer considerable benefits and significant savings over the entire life cycle of the project, it is essential for PPPs to minimize those costs that undermine efficiency gains and that deter private involvement. The quantitative analysis undertaken in this paper highlights that there is room for important savings in the tendering of PPP transport infrastructure projects, using an Open procedure.     

Effectiveness of safety-based incentives in Public Private Partnerships: Evidence from the case of Spain

Many countries around the world are implementing Public–Private–Partnership (PPP) contacts to manage road infrastructure. In some of these contracts the public sector introduces economic incentives to the private operator to foster the accomplishment of social goals. One of the incentives that have been introduced in some PPP contracts is related to safety in such a way that the better the safety outcome the greater will be the economic reward to the contractor. The aim of this paper is at identify whether the incentives to improve road safety in highway PPPs are ultimately effective in improving safety ratios. To this end Poisson and negative binomial regression models have been applied using information from highway sections in Spain. The findings indicate that even though road safety is highly influenced by variables that are not much controllable by the contractor such as the Average Annual Daily Traffic and the percentage of heavy vehicles, the implementation of safety incentives in PPPs has a positive influence in the reduction of fatalities, injuries and accidents.     

Measuring Success of PPP Transport Projects: A Cross-Case Analysis of Toll Roads

Abstract

The aim of this paper is to measure ‘overall’ success of a public private partnership (PPP) transport projects using four case studies. All four case studies are PPP toll roads from four different EU countries (UK, Spain, Portugal and Greece). The case studies have been analysed using a manual Qualitative Comparative Analysis approach. According to the paper, three different perspectives have been used to measure the success of a project, that is, project management perspective, stakeholder perspective and contract management perspective. The ‘overall’ success has then been deduced by bringing these three perspectives together as a holistic approach. The findings are presented in the form of a matrix and the final outcome of the paper shows a simple methodological approach that can be used to measure success of a PPP transport project. Since the study takes more of a qualitative approach, researcher bias and perceptions have a major role to play in the final outcome. However, to reduce ‘biasness’, quantitative measures have also been used to quantify the Key Performance Indicators and performance measures in the case studies. It is hoped that the study makes a valid contribution to the areas of transport PPPs and performance measurement.     

How Do Governments Support the Development of Public Private Partnerships? Measuring and Comparing PPP Governmental Support in 20 European Countries

Abstract

Taking an institutional perspective, in this article we develop an index of the governmental support for public private partnership (PPP) — a ‘PPP Governmental Support Index’ (GSI) — which aims to measure the extent to which national governments provide an institutional framework that is either conducive or preventive for the introduction and diffusion of PPPs within transport infrastructure and other sectors. First, based on a substantive review of the literature, we define the elements of the PPP GSI, including the policy and political commitment regarding PPPs, the legal and regulatory framework, and the presence/absence of dedicated PPP-supporting arrangements. Second, we calculate the PPP GSI for 20 European countries, cluster them and compare similarities and differences in national governmental support of infrastructure PPPs. Third, we explore the potential link between national institutional index scores and infrastructure PPP activity in the 20 countries. Lastly, we discuss the potential and usefulness of the presented PPP GSI, as well as methodological limitations, and elaborate on how this index might be utilised to strengthen future comparative research on PPP in transport and other sectors.     

Public–private partnerships: a review of economic considerations with particular reference to transportation projects

The paper sets in context some of the more recent work that has been conducted on public–private partnerships (PPPs) in the provision and operation of infrastructure. PPPs essentially involve a government or its agent signing an agreement with a private company or consortium to supply it with services with the private sector actor involved in major elements of designing, building, temporarily ‘owning’, and running the physical assets; basically they are long-term development and service contracts between government and a private partner. The paper outlines the development of economic thinking regarding the rationale behind PPPs, the extent to which unbundling is optimal and the forms that it may take, the nature of the contracts that are enacted and their renegotiation, the awarding of contracts, and matters of possible corruption. By way of focus, it also provides some indication of what empirical studies in the transportation have thrown up regarding the outcomes of PPPs.     

The effect of institutional factors on public–private partnership success in ports

Port public–private partnerships (PPPs) are considered to be an important emerging mechanism for port development and improvement in port performance especially for developing countries. This paper empirically investigates the effect of institutional factors in the success of port’s PPPs; the latter defined as the attractiveness of the PPP project for private bidders and the market competitiveness of the facility. The empirical investigation of a large sample of ports finds that ‘regulatory quality’, ‘market openness’, ‘ease to start a business’ and ‘enforcing contracts’ are important institutional determinants of port PPP success and may ultimately contribute to port development and economic growth. The results are consistent with and add to the theoretical literature whereas practical implications for port authorities, managers and investors are discussed.     

Coordination problems in container barging in the port of Rotterdam: an institutional analysis

Container barging has gained in importance in port-related transport along with the need for sustainable transport. Nevertheless, coordination problems between terminal operator and barge operator exist, and performance lags behind. This paper analyses factors that may hinder or stimulate a better future performance of container barging in the port of Rotterdam. A case study is accomplished and guided by a framework rooted in Institutional Economics. Despite favourable conditions set by governments and the port authority, the share of container barging has hardly grown. The container barging sector in Rotterdam is embedded in a history with many alliances, a high degree of organisation, and a good track record in the development of institutional arrangements to solve coordination problems. However, the present contractual relations in the transport chain form an inadequate condition. From a theoretical perspective, the paper shows the value of studying port-related transport chains by acknowledging their institutional context.     

“Cutting costs to the bone”: the Portuguese experience in renegotiating public private partnerships highways during the financial crisis

Transportation - How can governments renegotiate public private partnerships (PPPs) in order to reduce public expenditures? In 2011, in the aftermath of the financial and sovereign debt crisis,...     

Quality of institutions and private participation in transport infrastructure investment: Evidence from developing countries

In recent decades, owing to a series of public debt crises and constraints on government expenditure, infrastructure investment has dropped significantly in both developed and developing countries. To counterbalance this trend, Public–Private Partnerships (PPPs) schemes have been increasingly adopted. In this paper, we explore the determinants of the degree of private participation in transport infrastructure projects in a large sample of developing countries. By using a large sample of transport projects included in the World Bank Private Participation in Infrastructure Projects database, we document that greater participation by private parties in PPP contracts is associated with better institutions in terms of lower corruption, civil freedom, and a better regulatory framework.     

Evolution over time of heavy vehicle volume in toll roads: A dynamic panel data to identify key explanatory variables in Spain

Improving the knowledge of demand evolution over time is a key aspect in the evaluation of transport policies and in forecasting future investment needs. It becomes even more critical for the case of toll roads, which in recent decades has become an increasingly common device to fund road projects. However, literature regarding demand elasticity estimates in toll roads is sparse and leaves some important aspects to be analyzed in greater detail. In particular, previous research on traffic analysis does not often disaggregate heavy vehicle demand from the total volume, so that the specific behavioral patterns of this traffic segment are not taken into account. Furthermore, GDP is the main socioeconomic variable most commonly chosen to explain road freight traffic growth over time. This paper seeks to determine the variables that better explain the evolution of heavy vehicle demand in toll roads over time. To that end, we present a dynamic panel data methodology aimed at identifying the key socioeconomic variables that explain the behavior of road freight traffic throughout the years. The results show that, despite the usual practice, GDP may not constitute a suitable explanatory variable for heavy vehicle demand. Rather, considering only the GDP of those sectors with a high impact on transport demand, such as construction or industry, leads to more consistent results. The methodology is applied to Spanish toll roads for the 1990–2011 period. This is an interesting case in the international context, as road freight demand has experienced an even greater reduction in Spain than elsewhere, since the beginning of the economic crisis in 2008.     

Generalized transport costs and index numbers: A geographical analysis of economic and infrastructure fundamentals

We rely on the economic theory approach to index numbers to improve the existing definitions and decompositions of variations in generalized transport costs (GTCs). As a value index, we decompose GTCs into price and quantity indices associated to economic—market—costs and infrastructure variables—distance and time within a network. The methodology allows the accurate identification of the sources of GTCs decline. We illustrate it for the case of road freight transportation in Spain between 1980 and 2007 and at a highly detailed geographical level. Average GTCs weighted by trade flows have decreased by 16.3%, with infrastructure driving that reduction. We find large territorial disparities in GTCs, but also significant geographical clusters where the market and network indices show spatial association.     

Induced road traffic in Spanish regions: A dynamic panel data model

Distinguishing between traffic generated exclusively from the expansion of the road network (induced demand) and that resulting from other demand factors is of crucial importance to properly designed transport policies. This paper analyzes and quantifies the induced demand for road transport for Spain’s main regions from 1998 to 2006, years that saw mobility in Spain attain its highest growth rate. The lack of research in this area involving Spain and the key role played by the sector, given its high level of energy consumption and the negative externalities associated with it (accidents, noise, traffic congestion, emissions, etc.), endow greater relevance to this type of research. Based on a Dynamic Panel Data (DPD) reduced-form model, we apply alternative approaches (fixed and random effects and GMM-based methods) for measuring the induced demand. The results obtained provide evidence for the existence of an induced demand for transport in Spain, though said results vary depending on the estimating method employed.     

The ‘redheads’ of Niamey: an original way of providing urban transport

In Niamey, private motor vehicles carry 80% of those who use public transport. These vehicles are urban shared taxis called ‘redheads’ and run through the streets of the city in all directions. Their vital importance for the mobility of city‐dwellers justifies their strict supervision and the setting of fares by public authorities.

At present, the ‘redheads’ are in crisis. Taxi owners are no longer able to make a profit on their capital and are ceasing to invest. Urban buses are unable to replace taxis, for they operate at a large deficit. The government of Niger hopes to restore the level of transport service by means of new regulations for the taxi business in the city.

But this business is in the hands of both taxi owners and drivers, who, while partners in the operation, dispute over their share of the revenues. The aim of this article is to provide an economic and political analysis of this particular form of production of urban transport, in which employers who cannot control their companies, employees who reserve the profits of the business for themselves, and public authorities who are compelled to intervene, are coming face to face.     

Efficient contracting and incentive agreements between regulators and bus operators: The influence of risk preferences of contracting agents on contract choice

Contracts that govern transactions between regulators and operators are an important feature of service delivery in public transport. This paper reviews the literature on efficient contracting in general and its application to public transport contracts and found little empirical evidence on the influence of risk preferences of contracting agents on contract choice, a fundamental premise of classical contracting theory. Departing from the existing literature, this paper develops a choice experiment to study public transport operators’ preferences for different contractual forms. People involved in the public transport industry across Australia are invited to do the survey but the respondents are mainly bus operators in New South Wales. The respondents are offered two hypothetical contracts with different risk profiles and incentives and asked to indicate their preferences as well as their acceptance to provide the services under the contract they prefer. A non-linear scaled multinomial logit model is estimated to establish the role of risk allocation on contract preference of bus operators and the optimal amount of risks and incentives, conditioned on the operators’ attitude towards risk. The results help authorities design performance-based contracts to obtain their objectives while maintaining the operators’ level of satisfaction.     

Transport studies research in U.K. universities

British universities have entered a period of crisis. The outward manifestation of the current malady has appeared as a general cut-back in university spending. Until two or three years ago, most universities looked forward to a modest growth in activity. This has now been changed and the expectations of growth have been replaced by the reality of consolidation and modest decline. However, the universities are not alone in their dilemma. The general downturn in economic prosperity has left few institutions unscathed. Most universities, both in Britain and abroad, have therefore been forced to review their expectations and their ongoing commitments in teaching and research. The review of university activity goes much deeper than the immediate problems of finance. The current soul-searching has been sparked off by the crisis of finance, but has roots which go much deeper and touch on the very fundamentals of university education itself. In a sense, one is witnessing a belated form of public accountability: what is the purpose of a university; should its subjects be demonstrably relevant (both in themselves, as well as in their capacity to prepare students for a career); should universities engage in research and, if so, should it complement their teaching functions or be additional to it? These, and many other issues, are currently being discussed, and it is specifically with reference to their role in the field of transport research that this paper is addressed.     

Accompanied versus Unaccompanied Transport in Short Sea Shipping between Spain and Italy: An Analysis from Transport Road Firms Perspective

Short sea shipping (SSS) is called to play a key role in ensuring sustainable mobility in the European context. In the past years several studies tried to define the SSS requirements and also to identify the SSS lines that were economically viable. However, no studies approach the profile of their users—the road transport firms—and the organizational patterns adopted by them, in order to gain a better understanding of this transport modality. This research, on the basis of a sample of 81 international road transport firms that use SSS between Spain and Italy, analyses the profile of these firms and certain elements inherent to their relationship with the shipping firms, according to the two modalities of organizing their SSS transport operations: accompanied versus unaccompanied.     

How much disruption to activities could fuel shortages cause? – The British fuel crisis of September 2000

In September of 2000 the UK experienced a blockade of oil refineries in response to rising fuel prices. These protests resulted in severe fuel supply disruptions that intensified over the course of about one week. During the peak of the crisis, travel activity by car was curtailed. This paper analyzes survey data collected about two months after the crisis utilizing the recent memory of respondents as to how they would expect this sort of disruption to affect their participation in daily activities. Specifically, we focused on a variety of non-discretionary and discretionary activities and examined what factors are associated with respondents expecting disruption to those activities. Statistical models were developed to analyze how demographic factors, commute mode selection, vehicle characteristics, and various other factors can explain how individuals expect disruption to their activities. Results suggest that the majority of individuals do not expect major disruptions, although for more car-dependent individuals, disruption was expected to be substantial, especially for work-related trips. These results have implications for the potential success and benefits of an integrated transport policy.     

Competitive tendering versus performance-based negotiation in Swiss public transport

The purpose of this study is to assess differences in the levels of cost efficiency of bus lines operated under competitively tendered contracts and performance-based negotiated contracts. Following the revision of the Swiss railways act in 1996, regional public authorities were given the choice between two different contractual regimes to procure public passenger transport services. We directly compare the impact of competitive tendering and performance-based negotiation by applying a stochastic frontier analysis to the complete dataset of bus lines (n = 630) operated by the main Swiss company (Swiss Post) at the same time (in 2009) throughout the country. The overall results show that the differences in the levels of cost efficiency between the two contractual regimes are not significant. Our findings are in line with recent evidence of cost convergence between competitive tendering and performance-based negotiation, and suggest that the practice of using both contractual regimes is challenging for the operators in terms of competitive pressure. The threat of competitive tendering may have a disciplining effect on negotiation since it prevents bus companies from bargaining inadequate rents and inducing asymmetric information advantages.     

Sustainability assessment of inland transportation in China: A triple bottom line-based network DEA approach

The transport sector accounts for nearly one third of the world’s total energy use, while inland transport alone is responsible for half of the global petroleum consumption. The expansion of motorization in newly industrialized economies necessitates setting realistic targets. To support decision-makers in better assessment of transport sustainability performance, we introduce a systematic triple bottom line-based approach to evaluate inland transport, considering social, economic, and environmental dimensions of sustainability. The proposed network data envelopment analysis (DEA) measure organizes the three components of the system into a parallel structure, allocates shared input across subsystems, and incorporates undesirable output. The empirical application determines the efficiency of regional inland transportation systems in China from 2006 to 2015. The results indicate a rise in overall transport efficiency between China’s 11th and 12th five-year development plan periods and link the economic growth with a decrease in environmental transport efficiency in the Central and Western zones and with a decline in social efficiency in the Eastern zone. Since 2012, the social sustainability remains the weakest component of inland transport, which requires special attention by policy-makers to support vulnerable groups of transport users. This study provides further insight into the investigated measures and proposes recommendations for the improvement of inland transport in China.     

Cash flow sensitivities during normal and crisis times: Evidence from shipping

Using a system of equations model, we analyze how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments. Even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis. These firms were nevertheless able to increase long-term debt. Banks internalized the impact of foreclosure decisions on vessel prices and avoided an industry-wide collateral channel effect. Even during benign economic conditions, financially weak shipping firms underinvest because of their inability to raise sufficient external capital. The substitution between long- and short-term debt during the pre-2008 crisis periods shows that the composition of financing sources is more indicative of whether firms face financial constraints than the pure size of the financing-cash flow sensitivities. An analysis of firms’ excess cash holdings confirms the importance of financial flexibility.