Build-Operate-Transfer Contract

What Is a Build-Operate-Transfer (BOT) Contract?

A build-operate-transfer (BOT) contract is a model used to finance large projects, commonly infrastructure projects developed through public-private partnerships.

The BOT scheme alludes to the initial concession by a public entity like a neighborhood government to a private firm to both build and operate the project being referred to. After a set time period, normally a few decades, control over the project is returned to the public entity.

How Build-Operate-Transfer Contracts Work

Under a build-operate-transfer (BOT) contract, an entity — typically a government — awards a concession to a private company to finance, build and operate a project. The company operates the project for a while (maybe 20 or 30 years) fully intent on recovering its investment, then transfers control of the project to the government.

BOT projects are regularly large-scale, greenfield infrastructure projects that would some way or another be financed, constructed and operated exclusively by the government. Models remember a roadway for Pakistan, a wastewater treatment facility in China and a power plant in the Philippines.

By and large, BOT contractors are particular reason companies formed explicitly for a given project. During the project period — when the contractor is operating the project it has constructed — incomes as a rule come from a single source, an offtake purchaser. This might be a government or state-owned enterprise.

Power purchase agreements, in which a government utility acts as offtaker and purchases power from a privately owned plant, are an illustration of this arrangement. Under a traditional concession, the company would sell to straightforwardly to consumers without a government intermediary. BOT agreements frequently specify least prices the offtaker must pay.

Minor departure from the BOT

A number of minor departure from the fundamental BOT model exist. Under build-own-operate-transfer (BOOT) contracts, the contractor possesses the project during the project period. Under build-rent transfer (BLT) contracts, the government rents the project form the contractor during the project period and assumes responsibility for the operation. Different varieties have the contractor design as well as build the project. One model is a design-build-operate-transfer (DBOT) contract.

Features

• BOT projects are regularly large-scale, greenfield infrastructure projects that would some way or another be financed, fabricated and operated exclusively by the government.
• A build-operate-transfer (BOT) contract is a model used to finance large projects, normally infrastructure projects developed through public-private partnerships.
• After that period, the project is returned to the public entity that initially conceded the concession.
• Under a build-operate-transfer (BOT) contract, an entity — typically a government — awards a concession to a private company to finance, build and operate a project for a period of 20-30 years, expecting to earn a profit.