A Royalty Negotiation Model for BOT Projects: A Bi-level Programming Approach

Abstract

This study develops the royalty negotiation model of BOT (Build, operate, and transfer) projects for government and private sector by Bi-level programming approach. There were few studies to explore the royalty negotiation about BOT projects; however, the royalty negotiation is one of many critical negotiation items of concession contract. This study not only develops royalty negotiation model for BOT projects, but also develops the heuristic algorithm for the Bi-level programming problem. The factors of concession rate, time value discount, learn rate and number of negotiation are incorporated into this algorithm. In addition, this paper conducted a case study with the Taipei Port Container Logistic BOT Project by the LINGO and MATLAB programming. Results show that two parties finish the royalty negotiation at the 6th negotiation and the profit index of concessionaire is 1.0621; the government finance recovery rate is 11.689. Therefore, the royalty negotiation model herein developed could be applied to explain the negotiation behavior.