Determination of government guarantee and revenue cap in public–private partnership contracts Jin, Hongyu, Liu, S, Li, J and Liu, Chunlu 2021, Determination of government guarantee and revenue cap in public–private partnership contracts, Engineering, Construction and Architectural Management, pp. 1-22, doi: 10.1108/ECAM-06-2019-0311. Attached Files Name Description MIMEType Size Downloads Title Determination of government guarantee and revenue cap in public–private partnership contracts Author(s) Jin, Hongyu Liu, S Li, J orcid.org/0000-0003-1144-4355 Liu, Chunlu Journal name Engineering, Construction and Architectural Management Start page 1 End page 22 Total pages 22 Publisher Emerald Place of publication Bingley, Eng. Publication date 2021 ISSN 0969-9988 1365-232X Keyword(s) ALLOCATION Bargaining game Business & Economics CONCESSION PERIOD Engineering Engineering, Civil Engineering, Industrial FINANCE Government guarantee INFRASTRUCTURE PROJECTS Management OPTIMIZATION OPTION PPP PROJECTS Public-private partnership Revenue cap RISK Science & Technology Social Sciences Technology VALUATION Summary PurposeConsidering there is a lack of research in determining the optimal levels of government guarantee and revenue cap, the objective of this research is to determine their optimal levels to achieve a reasonable financial risk allocation between governments and private investors while avoiding overly lucrative conditions for private investors.Design/methodology/approachExpanded net present value (NPV) analysis and bargaining game theory are employed to construct the core of the determination process. The risk gap between governments and private investors is assessed via an expanded NPV analysis to see if the financial risk has been shared reasonably, based on which the range of the government guarantee is decided. A bargaining model is then created to help locate the optimal level of the government guarantee. Finally, a revenue cap, often combined with the government guarantee in public–private partnership (PPP) agreements, will be determined if overly lucrative conditions for private investors are observed or governments suffer a risk spillover.FindingsReferring to a real PPP project in Australia, Project BA is created to validate the applicability of the proposed determination process. The outcome shows that the proposed determination process in this paper is capable of determining the optimal levels of government guarantee and revenue cap. The government preferences towards risk allocation will influence the values of the optimal levels. Governments may also consider to alleviate the control over investors' net profits to mobilise private investors into PPP projects.Research limitations/implicationsThere is a potential possibility that the revenue cap fails to control the financial risk for governments or the overly lucrative condition for private investors. In other words, even though the revenue cap is set at the minimal level, the financial risk for governments still beyond their tolerance range or the overly lucrative condition for private investors still occurs. Future research may focus on other financial protective schemes which help to better control the financial risks for governments and profits for private investors.Originality/valueGovernment guarantees are frequently used as an investment incentive to reduce the probabilities of suffering loss for private investors. Nevertheless, the financial risks for governments may increase after providing guarantees and, as a result, revenue cap is required by governments to avoid placing themselves in an unprotected situation. By recognising the importance of the two contractual parameters, many scholars dig into their option values. However, there are very rare research works focussing on the method of determining the specific levels of government guarantee and revenue cap. To overcome the limitations of existing models and enrich the methodology for government guarantee and revenue cap determination, this paper contributes to the body of knowledge by developing a government guarantee and revenue cap determination process which contributes to a reasonable allocation of financial risks between governments and private investors. Language eng DOI 10.1108/ECAM-06-2019-0311 Indigenous content off Field of Research 0905 Civil Engineering 1202 Building 1503 Business and Management HERDC Research category C1 Refereed article in a scholarly journal Persistent URL http://hdl.handle.net/10536/DRO/DU:30159709 Document type: Journal Article Collections: Faculty of Science, Engineering and Built Environment School of Architecture and Built Environment Open Access Collection Related Links Link Description Connect to published version Go to link with your DU access privileges   Connect to Elements publication management system Go to link with your DU access privileges     Unless expressly stated otherwise, the copyright for items in DRO is owned by the author, with all rights reserved. Every reasonable effort has been made to ensure that permission has been obtained for items included in DRO. If you believe that your rights have been infringed by this repository, please contact drosupport@deakin.edu.au. Versions Version Filter Type Mon, 29 Nov 2021, 20:37:23 EST Mon, 29 Nov 2021, 20:50:36 EST Tue, 30 Nov 2021, 14:49:43 EST Tue, 14 Dec 2021, 15:20:21 EST Sat, 25 Dec 2021, 01:44:41 EST Fri, 31 Dec 2021, 14:55:40 EST Sat, 01 Jan 2022, 01:30:35 EST Tue, 18 Jan 2022, 16:39:53 EST Wed, 02 Mar 2022, 15:28:24 EST Wed, 02 Mar 2022, 15:30:03 EST Wed, 02 Mar 2022, 15:32:15 EST Filtered Full Citation counts:   Cited 0 times in TR Web of Science Cited 0 times in Scopus Search Google Scholar Access Statistics: 15 Abstract Views, 2 File Downloads  -  Detailed Statistics Created: Tue, 14 Dec 2021, 15:20:21 EST