Public Private Partnership (PPP) Construction Projects – Types and Benefits

🕑 Reading time: 1 minute

What is Public Private Partnership (PPP)?

The Public Private Partnership (PPP) is also known as PPP or 3P or P3 which involves two or more numbers of public and private sectors. This is a cooperative arrangement that is held for long – term period.

What is Public Private Partnership (PPP) Construction Projects?

Construction Project developed based on a PPP on behalf of a concession agreement or on a contract between two parties forms the PPP projects. Here, one party forms the government or statutory entity and other one will be the private sector company. The contract is prepared for the delivery of infrastructure service on the payment of respective charges. The main goal of PPP construction projects is to combine and involve the capabilities from both the private and public sectors for the mutual benefit.

Features of PPP Construction projects

The main features of PPP construction projects are:

• The 3P will assume planning. Design, financing, construction, and maintenance of the facilities performed
• 3P can be employed to bring new facilities and upgrading existing facilities.

Types of PPP Construction Projects

The different types of PPP construction projects are:

1. Build Operate Transfer (BOT)

BOT is one of the most common privatization agreements. In this agreement, the government will hand over the constructing and operating rights to a private sector. This will be given for a pre – determined period of time. Once the period is completed, this will be taken back by the government. One of the flexibility available in BOT is that the private sector can implement the planning and design as per the agreement. Some of the other types of BOT explained below like BOOT, BOO, DBOM, DBOT etc.

2. Build Own Operate (BOO)

The government grants the right to finance, design, build, operate and maintain a project to a private entity, which retains ownership of the project. The private entity is not required to transfer the facility back to the government.

3. Build Own Operate Transfer (BOOT)

As the name tells, the government will hand over the project to the private sector entity to perform:

• To design and build the Project
• To owns and operate the Project
• Transfer to the government or partner

The operation of the project completed must be performed for the specific period of time as stated in the agreement and must be finally transferred to the government. The transferring to the government or the partner is based on the previously agreed price or market price.

4. Design-Build (DB)

In this project agreement, a private partner is contracted by the government to design and build the facility based on the requirements performed by the government. Along with the agreement, the government will state the responsibilities in order to perform the operation and the maintenance of the facility. DB is also called as Build – Transfer (BT).

5. Buy Build Operate (BBO)

The government sells the facility to the private business. The private business refurbishes and operates the facility.

6. Design Build Operate(DBO)

A single contract is awarded to a private business which designs, builds, and operates the public facility, but the public retains legal ownership.

7. Design-Build-Maintain (DBM)

This model is similar to Design-Build except that the private sector also maintains the facility. The public sector retains responsibility for operations.

8. Build-Develop-Operate (BDO)

The private business buys the public facility, refurbishes it with its own resources, and then operates it through a government contract.

9. Build-Own-Lease-Transfer (BOLT)

The government grants the right to finance and build a project which is then leased back to the government for an agreed term and fee. The facility is operated by the government. At the end of the agreed tenure, the project is transferred to the government.

10. Contract Add and Operate (CAO)

As per the contract agreement involved in CAO, to an infrastructure facility, the project developer will expand the facility and rent it from the government. This is operated over a agreed period of time. This project may or may not be transferred back to the government by the project developer.

11. Develop Operate and Transfer (DOT)

As per the contractual agreement for DOT, the private developer will be given favourable conditions to built the infrastructure project along with the right to develop the property adjoining the same. Hence, the private developer is allowed to enjoy the benefits that is created by the investment. The investment includes rents, property values.

12. Rehabilitate Operate and Transfer (ROT)

In the case of ROT, the private sector is permitted to undergo the following activities on an existing facility,

• Refurbish
• Operate
• Maintain

These activities will be performed for a specific period of time after which the title will be transferred back to the government. ROT can be used to purchase the facility present abroad to undergo its refurbishment, erection etc. The consuming operation is done from the host country.

13. Rehabilitate Own and Operate (ROO)

This type will turn over the existing facility to the private sector to perform the refurbishment. Once the work is complete, the operations can be performed by the private entity without any time limit or ownership. Till the time the franchise is not violated, the facility must be operated permanently.

14. Lease Renovate Operate and Transfer(LROT)

In this type, the existing infrastructure is handed over to a private facility for a particular time period. This is given to undergo renovation and its operation for a specific time period. The operation is performed on the condition that the private facility will recover the cost that is agreed in return as per the contractual agreement along with the transferring of the entity back to the government.

15. Design-Build-Operate (DBO)

In the case of DBO, the designing and building of the facility is done based on a turn-key basis. After the completion of the facility, it is transferred to the public sector but the private sector will operate the facility for a specific period of time. The DBO can be also referred to as Build Transfer Operate (BTO).

16. Design-Build-Finance-Operate/Maintain (DBFO, DBFM or DBFO/M)

The contractual agreement under this criteria will enable the private sector to perform the following for a new facility

• Design
• Build
• Finance
• Operate
• Maintain

These activities are performed for a particular period of time or a long -  term lease. Once the lease time is over, the property is given back to the public sector. DBFO/M is a taken as a combination of BOO and BOOT in many countries.

Benefits of Private Sector Participation

Following are the benefits involved in the participation of private sectors in public projects.

1. The efficiency of the construction Project is increased by the private sector participation
2. The economic growth is stimulated
3. As a result of private participation, there is competition and innovations in the economy.
4. This construction project organization helps to fastly implement the project.
5. There is a transfer of technology, local personal training, and the national capital markets undergo developments.
6. Existing and ignored infrastructures can be improved and expanded.
7. The Government budget and borrowing practices are relieved
8. The quality of services delivered is highly improved
9. The cost-effectiveness of the project is improved
10. The risk present on public sector projects are reduced
11. The risk factors present in a construction project is allocated in a better way between the private and the public sector.
12. The assets are improved and operated in a better way
13. The delivery of the capital projects is made faster
14. The investments in the public infrastructure are increased tremendously
15. Budget certainty is improved highly
16. The participation of private sectors in public sector projects helps to provide a benchmark in order to judge the performance of the public sector.
17. The participation of private sectors in public sector projects is a more commercial approach performed on infrastructure development.
18. This helps to avoid unnecessary intervention from the political side.