Comparative Analysis of Legal and Economic Challenges in Risk Allocation in Build–Operate–Transfer (BOT) Contracts with Emphasis on the Iranian Legal System

Abstract

Build–Operate–Transfer (BOT) contracts, as one of the most significant models of public–private partnership (PPP), play a crucial role in financing and developing public infrastructure, particularly in developing countries. However, the structural complexity and long-term nature of these contracts have rendered “risk allocation” one of the most challenging legal and economic dimensions of BOT arrangements. An imbalance in the distribution of risks between the government and the private investor may lead to increased project costs, reduced investment attractiveness, the emergence of contractual disputes, and ultimately the failure of infrastructure projects. Within the Iranian legal system, these challenges are exacerbated by legislative ambiguities, regulatory fragmentation, and weaknesses in enforcement practices. The present study adopts a descriptive–analytical and comparative approach to examine the legal and economic challenges of risk allocation in BOT contracts and compares the legal status in Iran with selected legal systems and successful international practices. This study analyzes the concept and categories of legal, financial, and operational risks in BOT contracts, while also exploring the theoretical foundations of risk allocation from the perspectives of contract law and economic analysis of projects. The findings indicate that in Iran, the absence of a coherent and transparent legal framework for determining and allocating risks has resulted in an imbalanced transfer of risks to either the private sector or the government, the imposition of unforeseeable obligations on public authorities, and a reduction in the economic efficiency of projects. In contrast, comparative experiences demonstrate that successful legal systems, by relying on principles such as allocating risks to the party best able to control them, ensuring contractual transparency, and integrating cost–benefit analysis with legal rules, have been able to establish a relative balance between public interests and private investment incentives. Ultimately, emphasizing the necessity of revising Iran’s legislative and contractual policies, this study proposes that, through a calibrated adaptation of comparative models and the integration of legal and economic considerations, a localized framework for balanced risk allocation in BOT contracts should be designed in order to facilitate sustainable investment and reduce contractual disputes.