An exploration of ex post contract adjustment under Public Private Partnership with
special investigation of the transportation industry
Tong Fu
Hull University Business School
t.fu@2010.hull.ac.uk
Background: Public Private Partnerships (PPP) is a specific mechanism, under which firm
construct an infrastructure while government awards some years of the operation right to the
firm to get economic return. Government could save public budget and firm could get the
contract right under PPP. The first project of is launched in UK in 1992 (Li et al 2005), the
success of PPP in UK leads a spread towards the all countries. In particular, PPP has been
adopted increasingly in recent decades in developing or developed countries. At the same
time, a number of PPP program go through ex post Contract Adjustment (CA), which is out
of the expectation of private firm and government. This research explores and investigates ex
post CA under PPP.
Purpose: This research is aimed to give a clear picture for ex post CA under PPP. More and
more programs use PPP and many of those goes through ex post CA, but ex post CA under
PPP does not get adequately explained. The departure between the theoretical vision and real
situation motivates author to give a picture for ex post CA. Moreover, the two-fold
characteristics of ex post CA for PPP need a specific research. Precisely, CA is efficient for
implementing contract under ex post risk, meanwhile, it must leads to ex post contract
conflict since the original contract is not effective anymore under ex post CA for PPP
programs.
Methodology: Modelling, data collection after original measurement and data analysis are
used. Precisely, given government has two options under ex post CA for PPP program, rescue
policy or takeover policy, and that government has inherent incentive to rescue firm to keep
PPP going (otherwise, PPP will not adopted at the first place), one model is especially used to
figure out the potential takeover policy of government under CA for PPP program. Therefore,
we could draw a picture for ex post CA under PPP. After that, 32 real PPP programs with ex
post CA(s) are especially studied and then measure those cases with relevant sixteen
indicators and two dummy variables. Finally, the original data are analyzed with
econometrical tool.
Results: Need to point out, in our modelling, we figure out ex post CA is one chance for firm
to get government contribution under PPP. Meanwhile, ex post risk may be relevant for
realizing compensation effect. Our original data confirms three hypothesis related to the
compensation effect and deny two ones involving the ex post risk.
Discussion and conclusion: The compensation effect gets confirmed by our data while the
relevance of ex post risk is rejected. This means ex post government contribution due to CA
is reasonable in theory, meanwhile, it is also necessary in reality since the ex post risk of PPP
program is not from strategic behavior due to its irrelevance. The research could be
concluded as following. Ex post CA under is the ex post adjustment of contract relationship
between firm and government for PPP program; its witness the adaptation process of PPP
program under ex post risk.