Towards a More Competitive PPP Procurement Market : A Game-Theoretical Analysis

Due to the extensive timeframes and the transfer of risk towards the preferred special purpose vehicle, there is more value at stake in public-private partnership projects in relation to traditional public procurement projects. The contractual complexity and the high bidding cost are open sesames for inexperienced contractors to refrain from the opportunity. Governments are currently seeking for mechanisms to increase competition, like reimbursing losing bidders for their research efforts. This study encompasses the bidding framework in a game-theoretical fashion while taking discrepancies in the bidders' experience levels into account. A contractor's strategy is composed of the pre-tender investment willingness and the targeted mark-up. Approximation algorithms to derive the Nash equilibrium are proposed. Furthermore, it is investigated how governmental policies may modify the bidding equilibrium. The theoretical findings are triangulated by a qualitative discussion with practitioners from the PPP field. The dynamics reveal the importance of the controllable and uncontrollable project risk that could result in a reluctance for the inexperienced player and a constriction of the market. This occurrence of an oligopolistic situation might be overcome through the introduction of government compensation policies despite the fact that these could come at a fair price