Long term contracts have two great inconveniencies: they reduce the public sector flexibility for adapting the service delivery to new or different needs and, decrease the exposure of the incumbent service provider to competition and market discipline. On the positive side, they may impulse productive efficiency and innovation particularly when construction and operation are bundled. Bundling may nonetheless favor transfer pricing, particularly when an effective supervision is absent, asymmetric information is height, and investments are scarcely verifiable. It is in this context that contract duration becomes a specific tool for controlling the performances' "relaxation" of the private partners. Yet, contract duration is strongly linked to investment decisions of the private partners and must be tailored to the specificity of the project, including the contractibility of investments, performances and payment mechanisms. Shortening the duration of the contract may nonetheless reduce the incentive of the private partner to undertake investments. Allowing a compensation scheme where the winning competitor pays compensation to the incumbent may be more viable alternative. The same may be achieved by re-tendering before the long-term contract expires. The unbundling of soft-facility management services may favor transparency of the private performance cost-recovery as well as the involvement of small firms that can not participate in large PPP biddings. When unitary payments are involved, it also possible to let bidders propose the duration of the contract as part of their bids. Where tariff are used, determining the length of the contract using the Least Preset Value of Revenue may also allow the pricing of the duration at the bidding stage.
Transparency of the term of the contract duration [Brazil: Lei 11.079, Art. 5] The clauses of public-private partnership contracts shall be in accordance with the provisions of art. 23 of Act 8987, dated February 13th, 1995, as applicable, and shall also state: I - the term of the contract, which shall be in line with the amortization of the investments to be made by the private partner, not shorter than 5 (five), and not longer than 35 (thirty-five) years, including possible extensions; [Mexico: Acuerdo Secretaria de Hacienda Diario Oficial 9 Abril 2004] 20. Las dependencias y entidades deberán presentar las solicitudes de autorización de proyectos para prestación de servicios ante la Secretaría, a través de las Direcciones Generales de Programación y Presupuesto sectoriales. En el caso de entidades sectorizadas, la solicitud deberá ser presentada por la dependencia coordinadora de sector y, en el caso de las entidades no sectorizadas, la solicitud deberá presentarse por la entidad, directamente a las citadas Direcciones Generales. 21. Las solicitudes a que se refiere el numeral anterior deberán acompañarse de la siguiente información: VI. Los elementos principales que contendrá el contrato de servicios de largo plazo que se celebraría entre la dependencia o entidad contratante y el inversionista proveedor, incluyendo: b) La duración del contrato; 27. LA solicitud de autorización, las dependencias y entidades deberán anexar los siguientes documentos: I. El proyecto de contrato de servicios de largo plazo, que deberá contener, entre otros términos y condiciones, los establecidos en la fracción VI del numeral 21, así como los siguientes: a) El plazo para dar inicio a la prestación de los servicios; f) Las condiciones para la modificación y prórroga del contrato; |