Evaluation of the contract reliability for alternative infrastructure project delivery: a contract engineering method

Abstract

Governments at all levels are increasingly motivating the private sector to participate in infrastructure development using alternative project delivery methods to relieve financial burden. When designing contracts, governments usually offer incentives while requiring cost or time guarantee to balance project attractiveness to the private sector and fair protection of public interest. However, a practical and critical problem is how to properly design these provisions. Although previous studies have investigated the value of these provisions, a knowledge gap still exists with respect to methods of fairly and effectively designing such provisions. This study fills this gap by developing a methodology that analyzes the appropriateness of guarantee or warranty provisions for contracts. In this study, a contract reliability index is constructed, and a process of evaluating contract reliability is proposed. The New Mexico Highway 44 project, in which three warranty provision arrangements are investigated, is used as a case study to illustrate the analysis process. Results show that although a ceiling clause can effectively motivate the private sector to participate in the project, it sacrifices a significant amount of public benefits. By contrast, although a warranty option can protect public benefits, it cannot effectively incentivize the private sector. A combination of the ceiling clause and the warranty option will therefore result in improved contract provision design. The proposed methodology in this study is especially useful for governments in properly determining contract clauses in infrastructure development.

Keywords

infrastructure development / contract design / contract reliability / guarantee provision / contract engineering

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