Estudios Palacios Lleras

Effective, Low-Cost Systems to Enforce Infrastructure Contracts

Chapter 3: Effective, Low-Cost Systems to Enforce Infrastructure Contracts[i]

Hugo Palacios Mejía

(…) Once it is accepted that public services can be provided through concession agreements –that is, accepting the existence of entry barriers that only government authorities can lift- any number of consequence arise. Authorities monopolize the ability to define the characteristics of the infrastructure project, and may do so according to principles of economic efficiency or any other criteria. Authorities must ensure an equal opportunity to all contractors bidding for an infrastructure project, which implies drafting detailed bidding conditions for the contract. At times, the would-be contractor can only adhere to the bidding documents, and his proposal may be limited to specific items, such as cost and term. This process is likely to prevent authorities from receiving offers boasting advanced technical or administrative features, since the terms and conditions are set forth base on the experience of the user, or his advisors, and not on the experience of those who have to innovate in order to compete in different markets. Though this inconvenience may not be eliminated altogether, its effects can be somewhat mitigated by inviting the potential bidders to comment on the conditions proposed by the authorities, as provided for by Argentine and Colombian Law. This allows for incorporating the opinions and concerns of bidders and financing resources. (…)

[i] Federico Basañes, Evamaría Uribe, Robert Willig, Can privatization deliver? Infrastructure for Latin America (Washington D.C., Inter-American Development Bank, 1999), Part 1, Chapter 3.