In order to properly manage the follow-up and supervision of the construction and operation stages, the agency in charge - be it a regulator or any other institutional arrangement - has to be organized and act in accordance with the criteria referred to as "best practice regulation". The Australia's Utility Regulators Forum (1999) defines best practice regulation in terms of principles, processes and organization:
■ "Best practice principles. A set of principles to guide the behavior of regulators.
■ Best practice processes. Processes provide a structured approach for regulators to develop best practice regulation.
■ Best practice organization. For best practice to be achieved, the regulatory organization needs to possess certain structural characteristics."
The good regulatory performance in the supervision of infrastructure PPP contracts generates externalities over other contracts and sectors by building a reputation about the regulator's governance that may affect the perception that investors have about the risk. In this sense, Berg (1999) states that "principles and processes matter because potential investors are looking for signs of regulatory independence and signals that policies are based on a comprehensive analytical framework rather than on the whims of individuals."
This effect on the investors' perception is of greater importance in developing countries. A first reason is because these countries need larger investments. Second, many of these countries are characterized by some degree of institutional weakness, where the judicial system is not considered a fair and efficient way of settling disputes.
Consequently, the supervision of the regulator's performance should also be an important part of the supervision of PPP projects (Amos, 2004). In effect, some mechanisms will be necessary to secure that the regulatory system is working in accordance with the criteria set forth by best practices. Therefore, periodic and public evaluations of the government and the regulatory agency's acts, entrusted to independent experts, could be a suitable option to guarantee the adequate performance of these institutions.