Automated Approach to Negotiation of BOT Contracts

Abstract

Build, operate and transfer (BOT) projects have become of increasing interest over the last few years. The BOT model entails a concession company providing the finance, design, construction, operation, and maintenance of an infrastructure project for a specified concession period. This paper deals with the negotiation of financial and contractual parameters associated with a BOT project before it is awarded to the promoter. It describes the development of an automated mechanism as an alternative approach in expediting the negotiation over a suitable pricing structure for the BOT project. The mechanism was developed by incorporating spreadsheet data into multiple linear regression models to formulate the prediction equations using the tariff, concession period, and rate of return as the variables. This approach reduces the bulk of urgent recomputations of the project cash flows during the final negotiation that would otherwise entail the use of considerable resources. The mechanisms could therefore be used as enhanced tools for dynamic negotiation between the government and the promoter for an acceptable level of tariff structure; concession period and rate of return on the promoter's investments; and for balancing the risk/return profiles of both parties.