Incompleteness and renegotiation of concession contracts: An empirical evaluation

This paper evaluates the determinants of concession contract renegotiations in a developing country, Peru, for a sample of 50 build-operate-and- transfer (BOT) infrastructure contracts using two complementary empirical approaches: count data models and survival models. Hypotheses derived from the economics of procurement are confirmed. In particular, factors that relate to the design of contracts, such as contract incompleteness and contract complexity, are found to be relevant in explaining the phenomenon of repetitive renegotiations. Other important factors, including political and financial risks, are also revealed to be important determinants of renegotiations in this country, in particular, when the empirical method permits measuring the influence of these variables throughout the life of the contract. However, no evidence has been discovered to support the thesis that resources assigned to contract regulators reduce the incidence of renegotiations. Some policy implications for contract design and renegotiation processes are proposed.