negotiations rather than relying on ad-hoc procedures as issues arise. Otherwise, the risk perceived by potential concessionaires increases, as well as the loss in transparency and accountability of the tendering process."<sup>7</sup> In order to provide the needed flexibility without compromising the interests of the concessionaire, there has been a progressive effort to include detailed procedures for the treatment of additional work in concession contracts. The government can demand additional work for up to a maximum of 20% of the initial official cost estimate of the project, and only up to two years before the concession ends. In the later concessions an additional restriction was added to the contract. It specifies that during the construction stage, additional work can only be demanded for up to 5% of the official cost estimate.

There are two further issues that need to be considered. First, how should the additional investment be valued? If the government can impose a low valuation, the concessionaire will suffer an economic loss. On the other hand, if the concessionaire can negotiate a high valuation of the extra investment, it will obtain excessive profits to the detriment of the State, and ultimately users or taxpayers. In recent concessions, any new investment demanded during the construction stage is valued according to a unitary pricing schedule contained in the tendering documents. Bidders implicitly accept these unitary costs when they participate in the franchising process. These official costs were introduced in the contract due to the difficulties encountered during negotiations to change some of the specifications of the initial concessions. In these earlier cases, bidders had to present detailed budgets for the project, including unit prices for all items."<sup>8</sup> However, since the project was awarded according to the Economic Offers-which were not required to be consistent with the investment budgets- bidders did not have an incentive to reveal their true costs.'<sup>9</sup> The construction phase lasts no more than a few years and therefore it may be reasonable to set unitary prices in the contract, especially when-as in Chile-they are indexed for inflation. However, setting prices far into the future may not be recommendable. Relative price variations and technological change will make prices set at the beginning of the concession period increasingly out of line with real costs. Therefore, the valuation of new investments required during the operational phase must be agreed between the Ministry of Public Works and the concessionaire. If they do not agree, differences must be settled by the Conciliatory Commission (described in the next section) based on technical reports produced by consultants from each party.

The second issue is how to compensate the concessionaire for the additional investments undertaken. There are several options:

**'7** EFG (1996, 1997a) present several arguments on why re-negotiation may be harmful to the public interest. The argument here is that these negative impacts are somewhat reduced if renegotiations are conducted within a clear and pre-established framework.

**8** Because MOP did not do the detailed engineering studies in these earlier concessions, it was not possible to have official unit prices.

**'9** In fact, because of the specific revenue sharing scheme included in the early contracts, bidders had an incentive to overstate their investment budgets.

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