Automated Approach to Negotiations of BOT Contracts with the Consideration of Project Risk
Publication: Journal of Construction Engineering and Management
Volume 134, Issue 1
Abstract
The terms of concession including tariff and concession period are often discussed intensively during negotiations of build-operate-transfer (BOT) contracts. Based on prior studies on negotiation terms and risk of BOT contracts, this paper incorporates risk attributes of the BOT project into the formulation of a contractual-negotiation model. The proposed model allows the government and the sponsor to reach a consensus on the terms should the financial return as well as the risk of the project be determined. The pro forma cash flow of a BOT project is developed and used to generate the probability distribution of net present values (NPV) from the owner’s viewpoint by using Monte Carlo simulation. High- and low-risk scenarios are obtained to determine whether the contractual-negotiation models vary in accordance with risk levels. Results show that, given the expected NPV, the sponsor should be offered more favorable concessional terms for projects with high risk than that with low risk. We suggest that the government and industry practitioners embody the risk attributes of the project in the automated contractual-negotiation model.
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Acknowledgments
The writers would like to thank two anonymous reviewers and the editor of the Journal of Construction Engineering and Management for their helpful comments on earlier drafts of this manuscript. This study was partially supported by National Science Council, Taiwan (Grant No. NSCTNSC-95-2416-H-264-010).
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Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 134 • Issue 1 • January 2008
Pages: 18 - 24
Copyright
© 2008 ASCE.
History
Received: Jan 22, 2007
Accepted: Apr 19, 2007
Published online: Jan 1, 2008
Published in print: Jan 2008
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