Fluctuation in construction costs and its effect on contract renegotiation behavior in PPP wastewater treatment projects: An evolutionary game analysis

Public-private partnership (PPP) is an alternative and efficient method to financing infrastructure provisions such as sewage treatment and water facilities. The long-term contract and dynamic uncertainty lead to inevitable and high-incidence renegotiation to PPP. However, renegotiation has been recognized as the Achilles' heel of concessions. The renegotiation initiated by the concessionaire in the construction phase usually occurs when the actual construction costs are higher than predicted. To explore when the concessionaire initiates renegotiation and the dynamic evolution tendency of his/her renegotiation behavior when actual construction costs overrun in the PPP sewage treatment project, this paper introduces the fluctuation of construction costs as a quantitative index and establishes an evolutionary game model to analyze the best strategic choice of the concessionaire under different circumstances. The not-renegotiating and renegotiating thresholds of the concessionaire can be drawn based on the model. According to these two thresholds, the fluctuation range of construction costs can be divided into three intervals. This article further discusses the evolution of the concessionaire's renegotiation behavior when the fluctuation of construction costs lies in these three different intervals. The findings indicate that when the actual construction costs overrun in the PPP sewage treatment, the best strategic choice of the concessionaire in the cooperation dilemma is related to the fluctuation of the construction costs. The results reveal the nonlinear relationships between renegotiation behavior and fluctuation in construction costs and provide a reference for regulating PPP renegotiation behavior in the construction stage to reduce its incidence.