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In the United States, BOT are defined as a single design-build-operate contract with financing secured by the public agency, i.e. the contract does not include private-sector finance, as opposed to DBFO (Federal Highway Administration, PPP Options). However, the Toolkit has retained another widely-accepted definition of BOT which provides for a broader; more generic definition of BOT and which generally includes private-sector financing. |
The following terms are used in the table:
Responsibility matrix for conventional procurement and PPP options | |||||||
Public-Private Partnership | |||||||
Category | Works and Service Contracts (conventional procurement) |
Management and Maintenance Contracts | Operation and Maintenance Concessions | Build Operate Transfer Concessions | Privatization | ||
Type | Design – Bid - Build | Design and Build | Management Contracts | Performance-Based Contracts | Lease or Franchise or Affermage Brownfield | BOT/DBFO/ BOO Greenfield | |
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Design | Private by fee contract | Private by fee contract | Private by concession contract | Private | |||
Build | Private by fee contract | ||||||
Operation and Maintenance | Public | Public | Private by fee contract | Private by BBC contract | Private by concession contract | ||
Finance | Public | Public | Public | Public | |||
Own | Public | Public | Public | Public | Public | Public after contract (BOT/DBFO) or Private (BOO) | |
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Private sector revenue options | Tolls (concession model) | ||||||
Availability payments (PFI model) | |||||||
Government guarantees and support Other support (eg insurance) |
Source: EGIS
The principal characteristics of each contract type are detailed below. Conventional procurement methods of design-bid-build and design and build are not currently considered within the normal range of PPP options.
Design-bid-build is the traditional project delivery approach that was used for most of the 20th century to procure public works. The design-bid-build model segregates design and construction responsibilities by awarding them to an independent private engineer and a separate private contractor. By doing so, design-bid-build separates the delivery process into three linear phases: 1) Design, 2) Bid, and 3) Construction. This also includes quantity-based maintenance contracts.
Remuneration of the contractor is based on unit prices defined in the construction or maintenance contract and quantities measured on site. Design works are previously defined by a consultant and a supervision consultant typically assists the Contracting Authority in controlling the quality and quantity of work done.
Design and Build is a project delivery method that combines two, usually separate services into a single contract. With design-build procurements, owners execute a single, fixed- fee contract for both architectural/engineering services and construction. The design-build entity may be a single firm, a consortium, joint venture or other organization assembled for a particular project.
With design-build delivery, the design-builder assumes responsibility for the majority of the design work and all construction activities, together with the risks associated with providing these services for a fixed fee. When using design-build delivery, owners usually retain responsibility for financing, operating and maintaining the project. While design-build procurement has been more prevalent in private sector work, it is also gaining acceptance among many public sector transportation infrastructure owners
Management contracts: A management contract is an arrangement by which a private company is entrusted with various types of tasks usually performed by the public authority, relating to the organization of road maintenance operations. Usually, the function of the private firm is to respond to day-to-day routine maintenance requirements by contracting private companies, on behalf of the public entity, to perform the works. Management contracts can also (or only) focus on operation management. In this case, typical tasks entrusted to the private sector are: traffic counting, axle-load weighing and providing traffic information, traffic management including surveillance, stand-by services for accidents, traffic regulation, toll collection (usually not remunerated on the basis of the amounts collected but rather on a fixed rate basis).
Performance-based maintenance contracts are derived from the previous type of arrangement by shifting the focus from administration (maintenance activities and resources) to certain performance conditions valued by the users. They typically leave contractors with more autonomy in the design and organization of the works. Remuneration is based on a monthly fee determined up-front stated in the contract and linked to performance indicators
In PBC the client does not specify any method or material requirements. Instead he specifies performance indicators that the contractor is required to meet when delivering maintenance services. For example, the contractor is not paid for the number of potholes he has patched, but for the output of his work: no pothole remaining open (or 100% patched). Failure to comply with the performance indicators or to promptly rectify revealed deficiencies adversely affects the contractor's payment through a series of clearly defined penalties. In case of compliance the payment is regularly made, usually in equal monthly instalments.
PBC within the road sector can be "pure" or "hybrid". The latter combines features of both method- and performance-based contracts. Some services are paid on a unit rate basis, while others are linked to meeting performance indicators
Examples of performance-based maintenance contracts in Serbia and Zambia are presented in Module 6: Tools -> Case Studies.
Operation and maintenance concessions (service concessions): The host country's objectives may be for the private sector to operate and maintain an already existing road, and therefore the government may grant a concession to the private participants to charge user tolls to help finance the improved operation and maintenance of the road. Such a concession shifts the financial burden of operation and maintenance to the road user and at the same time should increase the efficiency of the road's operation and maintenance. Besides the issues inherent in a concession agreement, an operation and maintenance concession is similar in scope and approach to what is required and negotiated in a typical operation and maintenance agreement between private parties under a BOT-type arrangement (see below). This type of concession is also referred to as franchise, lease; "affermage" (French term) or "concession" under the PPI database.
Operation and maintenance concessions enable the public sector in developing countries to transfer commercial risk to the private sector and to create incentives for the private sector to ensure efficient revenue collection and to undertake regular maintenance to increase the reliability of facilities and postpone their renewal.
BOT-type of concessions (works concessions): Under a BOT, the responsibility of the concessionaire is not limited to operation and maintenance of the infrastructure but also comprises an initial construction, upgrading or major road rehabilitation component. Massive investment and consequent mobilization of private funding sources is therefore required from this company and is to be repaid from the revenue collected from road users (usually tolls). BOT (Build Operate Transfer) stresses the responsibility of the private entity during construction and operation of the road and the handing over (transfer) of the assets to the public entity at the end of the operation period. The high initial investment required from the private sector and the consequent long concession period make the distribution of risk between the parties a key element of success in such schemes. Many variations on this type of contract have been implemented with a consequently growing number of acronyms used to label them (DBFO, BOOT, BTO), refer to the Glossary. This PPP type is also referred to as "greenfield" in the PPI database.
BOT-type of concessions offer further advantages of increased value for money through efficiencies in construction costs as well as plant and labor management and to escape public budget constraints and to mobilize investment funds rapidly through project finance non-recourse funding. However, tendering and contracting may initially be lengthy procedures if there is little previous experience in the country.
In the BOT-type concession, private sector participants typically establish a project company and, after securing an exclusive license from the host government or contracting authority (concession agreement), construct, control, operate and maintain a project for a determined length of time (concession period). The private sector participants then transfer the project company assets back to the host government after the period has elapsed.
Examples of BOT type contracts in Chile, Croatia, UK, South Africa are presented inModule 6: Tools -> Case Studies.
Toll Road Corporations or Authorities are either public, private or semi-public organizations set up to develop and operate a regional or national network. Setting up a public toll road corporation is often chosen by Governments to maintain a strong influence over the operator. Such an entity is free to collect tolls for its own development and its ability to tap private finance is facilitated by strong government support or by demonstrated revenue and a track record proving financial viability. This is usually reflected in good credit ratings. Building the infrastructure facilities may not necessarily be part of the initial assignment. For example, a corporation could be set up to operate an existing road infrastructure facility and build new facilities as revenue is raised through tolls collected on the existing facilities, or through the securitization of future revenue made possible by the existence of a solid past revenue record. Toll Road Corporations have largely contributed to the development of the highway networks in Europe (France; Italy, Spain and Hungary M3), Japan and the USA. In France and Italy, both public and private corporations co-exist.
Although public toll road corporations may not be considered as genuine public-private partnerships, it provides many of the characteristics of PPP roles and the operator is required to contract through competitive tender at least the construction works and possibly also the operation, maintenance and toll collection to private companies.
Examples of toll road corporations and authorities developed in France and Indonesia are presented in Module 6: Tools -> Case Studies.
A Sourcebook for Poverty Reduction Strategies, World Bank, 2002
Privatization means transferring a public service or facility to the private sector, sometimes together with its ancillary activities, for it to be managed in accordance with market forces and within the framework of an exclusive right granted by a ministerial or parliamentary act (or sometimes a license). Since there is a full transfer of ownership in which the private sector assumes all risks and responsibilities associated with the activity, it is not generally considered within the range of PPP options. In the highways sector, privatization is usually confined to the case of toll road corporations, as in France (Module 6: Tools -> Case Studies).
PPP Options, Federal Highway Administration; USA
http://www.fhwa.dot.gov/ppp/
Resource Guide, Performance-based Contracting for Preservation and Improvement of Road Assets, World Bank http://www.worldbank.org/transport/roads/resource-guide/index.htm
It may be expected that projects with higher level of private sector involvement deliver more efficiency gains. However, the level of complexity of the projects and the consequent risk of failure grows correspondingly. The first major difficulty for the decision makers consists therefore in identifying which option may be most suitable for their country and for the projects they want to implement. Main parameters leading this choice will be: