Life-Cycle Contract Management Strategies in US Highway Public–Private Partnerships: Public Control or Concessionaire Empowerment?

Abstract

Public–private partnerships (PPPs) are multilateral transactions implemented over long-time horizons; hence, they are complex arrangements that face various forms of uncertainty. These characteristics have made them a subject of research in a variety of fields. The nature of the transaction has attracted scholars who have examined them in the context of agency theory, incomplete contracts theory, and transaction cost economics (TCE). The prevalence of life-cycle uncertainty in PPPs is at the root of many contractual issues, such as incentive allocation, high transaction costs, and opportunism, which are innate in long-term contracts. Thus, the uncertainty management function of PPP contracts, including actor governance, plays an integral role in resolving contractual issues. Yet, limited research has comprehensively examined these topics at the project level. This investigation remedies this gap by examining how 23 PPP contracts in the US highways sector were structured to explore the tension between public sector control and concessionaire empowerment over the project life cycle. The findings demonstrate that public agencies utilize various approaches to monitor and control concessionaire actions rather than empowering them in PPPs. This suggests that agency problems persist in PPP arrangements. However, this circumstance may be a consequence of the sociopolitical scrutiny of public agencies generally and PPPs specifically, so further investigation of this observation is warranted. Further, the extensive monitoring activities uncovered will likely increase costs for public agencies and challenge their existing competencies.