Organization, Technology & Management in Construction: An International Journal
ISSN 1847-5450 print / ISSN 1847-6228 online
udc 62:658(05)

<<Table of Content

2. J. Korytárová, J. Štaffa, P. Papežíková, M. Špiroch:

Financial Risk Hedging Instruments for Public Work Contracts

Abstract:

Public work contracts create a substantial share of building industry performance and consume a large amount of public financial resources. Construction process should be efficient without additional costs and overrun time schedules. A very important point in this process is represented by hedging public contracts against potential risk. There are many instruments used in the Czech Republic - insurance construction contracts, contractual penalty and retention or a bank guarantee to name several of them. But not all of them are as effective as the contractors need them to be. The main aim of this paper is to find an effective set of hedging instruments in contracts for work to sufficiently fulfil their function and protect the goals of both the investor and the contractor impending business risks. Information on hedging instruments has been studied on the sample of 246 public works contracts of sewage facilities and equipment. The empirical part of the research focuses on the extent of hedging instruments used, and discusses their application in the context of efficiency. Research finds out that the most commonly used instruments are retention and bank guarantees. Furthermore, the reasons for significant changes in shares of these instruments in the course of monitoring have been analyzed. The final outputs can have societal benefits and serve the contracting authorities and suppliers as a comparison of conditions of their own work contracts or as a help in creation of new work contracts. As additional outputs of this research is also comparison of contract prices and estimated values of tender according to number of tenders and type of award procedures.

Keywords: Public works contracts; Hedging instruments; Estimated value; Tender price; Contract price