Procurement and Contract Design in the Construction Industry

This paper considers the choice between different approaches to contract for the construction and maintenance of infrastructure projects. The need to control for user costs over the life cycle of an asset is demonstrated to be a core aspect of contract design. The more likely it is that a certain problem in the current infrastructure could be sorted out in several different ways, the more strongly should the tendering agency consider innovative design alternatives such as performance contracts of Public Private Partnerships. It is also demonstrated that contracts which cover both construction and subsequent maintenance must be accompanied by bonuses and penalties for remunerating or punishing the entrepreneur for delivering (or not) appropriate infrastructure quality.