Influence of the Tendering Mechanism in the Performance of Public-Private Partnerships: A Transaction Cost Approach

Abstract

This article develops a theoretical model, based primarily on transaction costs, with which to compare the various tendering mechanisms for public-private partnership (PPP) projects. In particular, the model contrasts negotiated procedures with the open procedure, as defined by current European Union legislation on public tendering. The model includes both ex ante transaction costs (borne during the tendering stage) and ex post transaction costs (such as enforcement costs, renegotiation costs, and costs arising from litigation between partners) and explains the trade-off between them. The bottom line is that it is difficult to justify the extensive use of negotiated procedures in many countries.