Build-Operate-Transfer Contract

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What is a Build-Operate-Transfer (BOT) contract?

A construction-operation-transfer contract (BOT) is a model used to finance large projects, generally infrastructure projects developed within the framework of public-private partnerships.

The BOT program refers to the initial concession by a public entity such as a local government to a private company to both build and operate the project in question. After a defined period, generally two or three decades, control of the project returns to the public entity.

How Build-Operate-Transfer Contracts Work

Under a construction-operation-transfer (BOT) contract, an entity – usually a government – grants a concession to a private company to finance, build and operate a project. The company operates the project for a period of time (maybe 20 or 30 years) in order to recoup its investment, then transfers control of the project to the government.

BOT projects are normally entirely new large-scale infrastructure projects that would otherwise be funded, built and operated only by government. Examples include a highway in Pakistan, a wastewater treatment facility in China and a power plant in the Philippines.

In general, BOT subcontractors are specialized companies formed specifically for a given project. During the project period – when the entrepreneur operates the project he has built – the income generally comes from a single source, a drawdown buyer. It can be a public or public enterprise.

Electricity purchase agreements, in which a utility acts as a purchaser and purchases electricity from a private power plant, are one example. Under a traditional concession, the company would sell directly to consumers without any government intermediary. BOT agreements often stipulate minimum prices that the buyer must pay.

Key points to remember

  • A construction-operation-transfer contract (BOT) is a model used to finance large projects, generally infrastructure projects developed within the framework of public-private partnerships.
  • BOT projects are normally entirely new large-scale infrastructure projects that would otherwise be funded, built and operated only by government.
  • Under a construction-operation-transfer (BOT) contract, an entity – usually a government – grants a concession to a private company to finance, build and operate a project for a period of 20 to 30 years, in the hope of making a profit.
  • After this period, the project is returned to the public entity which initially granted the concession.

BOT variations

There are several variations of the basic BOT model. Under construction-own-operate-transfer (BOOT) contracts, the contractor owns the project during the project period. Under construction-rental-transfer contracts (BLT), the government rents the project from the contractor for the duration of the project and takes charge of the operation. Other variants have the design of the contractor as well as the construction of the project. An example is a design-build-operate-transfer (DBOT) contract.

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