Three Essays on Contract Renegotiation

Jung, Hojin

Three Essays on Contract Renegotiation

dc.contributor.advisor	Kosmopoulou, Georgia
dc.contributor.author	Jung, Hojin
dc.contributor.committeeMember	Burge, Gregory
dc.contributor.committeeMember	Liu, Qihong
dc.contributor.committeeMember	Rogers, Cynthia
dc.contributor.committeeMember	Linn, Scott
dc.date.accessioned	2014-05-09T21:12:41Z
dc.date.available	2014-05-09T21:12:41Z
dc.date.issued	2014-05-09
dc.date.manuscript	2014-05
dc.description.abstract	This dissertation is a collection of three essays investigating renegotiation of procurement auctions in the road construction industry. The empirical analysis uses contracts procured by the Vermont Agency of Transportation from 2004 to 2009. In practice, these adjustments, frequently attributed to incomplete contracts, are observed in sizable and complex procurement projects. As a consequence there are significant differences between contract amounts and final payments to a contractor due to ex post changes. In addition, it is possible that firm's bidding strategies are influenced by the anticipation of change orders, with negative effects on the efficiency and overall cost of highway construction programs. First we investigate the impacts of ex post renegotiations on ex ante bidders' bidding behaviors and their markups and costs. In particular, we consider a set of adjustment types such as quantity adjustments and extra work adjustments which are common in the field. Then we analyze the factors associated with the frequency of change orders. In the first essay, we focus on ex ante bidder's strategic bidding behavior in anticipation of ex post contract renegotiation. The empirical analysis shows that the magnitude of estimated markups is systematically higher for projects with positive quantity adjustments than those without such renegotiations. The second essay continues the study of the impact of incomplete contracts that requires ex post extra work on procurement costs. We find this unique compensation process causes significant adaptation costs at the renegotiation stage, which provides contractors with markups similar to those they would earn in projects without renegotiations at all. In the last essay, we investigate the reasons for the frequency and magnitude of renegotiations in the Vermont transportation contracts. We show that project uncertainty and complexity and bidding behaviors are valuable predictors of renegotiations. All these studies are about public procurement in the transportation industry. Every essay provides a transportation department with relevant policy implications. This study has the potential to increase the efficiency of budgetary planning for the transportation department, and reduce costs to the tax payers. Our empirical analysis shows that bidder's strategic bidding and adaptation costs associated with renegotiating a contract could increase the procurement costs. Therefore, it may be preferable for the procuring agency to invest more time in providing more completed designs rather than to proceed with the project and deal with renegotiations ex post.	en_US
dc.identifier.uri	http://hdl.handle.net/11244/10386
dc.language	en_US	en_US
dc.subject	Economics, General.	en_US
dc.thesis.degree	Ph.D.	en_US
dc.title	Three Essays on Contract Renegotiation	en_US
ou.group	College of Arts and Sciences