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When +20% Is the Floor — The Latin American PPP Trap
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Many people challenge my preferred RFP strategy for PPPs: “Pre-qualify strong consortia, set a minimum technical pass/fail, and award to the best NPV bidder? They’ll just bid low and renegotiate later!” I get it. That tactic has been abused in Latin America for years. But we need to ask: Why has +20% (often +50%, +100%, +200%) become almost inevitable there? ​ Let’s look at the real causes: ​ Why PPP prices skyrocket after award 1) Renegotiation is systemic. In transport PPPs, up to 78% of contracts are renegotiated… often within the first year. ​ 2) Projects launched half-baked. Weak studies, incomplete designs, poor risk allocation, unclear scope. Politicians chase ribbon-cutting photos. Taxpayers pay the bill later. ​ 3) Soft-budget dynamics. Bid cheap → survive construction → “discover” new works → renegotiate. Initial price becomes a fantasy. ​ 4) Hidden fiscal costs. Future liabilities, guarantees, scope expansions… Everything that wasn’t priced at Day 1 suddenly appears at Day 500. ​ Net result: Everyone pretends the initial cost is low. Everyone knows it won’t be. ​ It’s not a governance model. It’s a game… and a very expensive one. ​ Between 1990 and 2013, over 1,700 PPPs reached financial close in Latin America. The majority were renegotiated. +20% became the minimum increase. ​ What this means for each stakeholder Governments PPP done fast and sloppy = more expensive than traditional procurement. And with less accountability. ​ Bidders & Investors Low-ball bids become booby traps: scope creep, disputes, restructuring, reputation damage. ​ Citizens Higher tolls, higher taxes, deferred public debt. The opposite of value for money. ​ That’s not the future we want. ​ How to stop the price creep ​ If agencies want good PPP outcomes, they must: Finish the homework before launching the RFP Define minimum technical standards, KPIs, lifecycle requirements Conduct real market sounding and incorporate feedback Provide ground & property data, early technical clarity Run a disciplined, transparent evaluation (no grey areas) Enforce independent review before any renegotiation ​ If you reward clarity and discipline… You get innovation and competitive tension. ​ If you reward shortcuts… you get a renegotiation. ​ PPP Rule of Thumb: If you don’t allocate risk upfront, Risk will allocate itself later…and it will be very expensive. ​ More tomorrow. In the meantime, you can do click below. ​Vicente Valencia Academy ​ ​ PD 1: If you liked this email, don't keep it in secret and forward it to a friend. They will thank you enormously one day. PD 2: If somebody has sent you this email and you want to receive emails like this yourself, visit vicentevalencia.com PD 3: If you want unsubscribe, click the link below. ​ ​ |
Vicente Valencia
I talk about Personal Growth, Management, Infrastructure and More | 👇JOIN +2k readers 👇
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