Asset Management Perspective on the Duration of Public-Private Partnership Contracts: Cost-Control Trade-off?

Abstract

The risk-incentive model of principal-agent relations and its extensions to infrastructural public-private partnerships outline the efficiency implications of parameters such as contract duration. The predominant focus on individual contracts is of limited use for public agencies that need to allocate their resources efficiently at the level of the entire asset network. This study therefore adopts an asset management perspective on the issue of contract duration in public-private partnership (PPP) contracts. In so doing, this research aims to add to the understanding of asset network level effects of important contractual parameters such as contract duration. Empirical material from the Netherlands illustrates that public professionals tend to think about contract duration in terms of a network cost–network control trade-off. From the data, a hierarchical set of criteria deemed relevant for determination of contract duration is elaborated that ultimately supports network accessibility. Limitations, managerial implications, and suggestions for future research are discussed.