The natural contractual incompleteness of PPP long term agreements requires the awarding authorities to include in the contract specific mechanisms for dealing with (1) qualitative aspects or tasks of the private service performances that are too costly or simply impossible to specify, and (2) changes of circumstances. The unbundling of soft facility services, with the consequent reduction of the duration of such services delivery, may serve to reduce agency costs due to asymmetric information. Consumers' surveys run by third independent parties or audited by the same may helps in controlling the quality aspect of non-measurable tasks which may otherwise be cut by the private provider to reduce costs. Combined with registers of contractors and consultants, such surveys may foster "reputation" or "brands" acts and sustain high quality of the performances. Yet, absent a transparent procedure for their creation and monitoring, the mentioned registries may also serve to artificially reduce competition, favor conflicts of interest within the public administration, or cover collusive practices. Nonetheless, poorly observable quality dimensions or tasks, as well as the call for ensuring that specific needs are met may require the use of some input-based specification. To this concern, the link to specific payment mechanism cost-plus more than fixed-cost may also serve to reduce agency cost.
Transparent mechanisms for dealing with unforeseen changes in cost of major inputs, service requirements or regulatory environment, such as indexation clauses or value testing procedure (including price reviews, market testing and benchmarking) may reduce gaming to compensate non-recoverable cost. These clauses should provide the private sector with hedging cost-overrun outside its control while maintaining the incentives to undertake cost reducing efforts. Price adjustment clauses may also reduce opportunistic behaviors of the private partner, particularly when the regulatory lag is structured in a way to incentive cost-efficiency efforts and to avoid the ratchet-effect of the private party. The need for the contract to be adapted to changes of circumstances can be dealt also by building in the contract a certain degree of flexibility aimed at reducing the need for contractual changes. Such built-in flexibility can be priced at the bidding process and can reduce gaming at the subsequent renegotiation stage. Shock-absorbent clause drafted into the contract may help to avoid minor financial restructuring and reduce the emergence of costly dispute, which may jeopardize the public-private relationship. The same flexibility in the design of the infrastructure projects can be complemented with ex-ante drafted contractual devices. They should be capable of switching the project engineering or structure to fulfill new (but already priced) service demands. Furthermore, the limit to the value of additional works that can be requested after the awarding -without calling for a new tendering - may also reduce gaming and renegotiations.
The management of contract incompleteness and changes of circumstances along the PPP lifecycle challenges the relationship of the parties including affected stakeholders. An accessible and transparent monitoring, the strengthening of consultation and the dissemination of information to the parties involved in the service delivery may serve to prevent disputes between the parties. PPP contracts should therefore include duties and rights for the parties, to achieve such goals. Relation management mechanisms should be designed to prevent crisis, and accountable and fast dispute resolution mechanism, such as arbitration, should be considered in contract drafting. This is particularly relevant in PPP because service disruption can affect the public-sector party, which can be easily captured in long-lasting disputes. Yet, adaptation and flexibility may reduce predictability and therefore clash with "bullet-proofed" cash-flow predictions needed for the bankability of highly leveraged projects. Debt providers concerns must therefore be considered and included in contract provisions. Transfer of information by the lenders to the public party may also reduce asymmetric information. Yet, capture by the same debt providers shall equally be avoided and "step-in rights" must be carefully drafted for maintaining the accountability of the taking-over entity and transparency of its performance requirements and liabilities. Change of circumstances, including defaults of any party, voluntary termination of the public sector, force majoure, may ultimately lead to an early termination of the partnership. This is why it is important for the contract to provide transparent provisions concerning the circumstances that may lead to termination together with the correspondent compensation scheme that may be applicable.