Build-operate-transfer Contract Research Articles

The effects of governance on performance: the case of Public–Private Partnership (PPP) toll roads in Indonesia

This article examines how contract model selection shapes PPP governance, which may affect the construction performance of PPP Toll Roads in Indonesia. This study compares the performance of PPP contracts used to build the 49 toll road projects, i.e. the Build-Operate-Transfer (BOT), Supported BOT (SBOT) and Design-Build-Finance-Operate-Maintenance (DBFOM) contracts. Using an Instrumental Variable Two-Stage Least Squares Regression (IV-2SLS) approach, this study discovers that SBOT contracts have lower costs and shorter completion times than BOT contracts due to a better incentive structure, which includes not only various government supports but also stronger control mechanisms in preparation, monitoring and audit. Meanwhile, using an OLS regression, DBFOM contracts have lower costs and shorter completion times than BOT contracts because private firms were able to better internalize externalities and perform better design and monitoring because they were in charge of the planning from the beginning. These findings suggest that the choice of contract has significant effects on the construction performance of PPP and transaction cost minimization is one of the keys to consider in the selection of PPP contract governance, especially to anticipate cost overrun and time delay risks.

Effects of asymmetric investment cost information on revenue-compensated build-operate-transfer highway contracts

In the planning stage of build-operate-transfer (BOT) highway projects, private firms usually possess more information about the investment cost than governments. This study considers the problem of how to design project contracts and regulate private firms whose investment costs are unobservable to governments. A principal-agent model is proposed to investigate this type of BOT contracts, in which governments aim to maximize social welfare, while the firms are guaranteed a reserved level of profit and have no incentive to misreport their costs. Besides, the extent to which the information asymmetries influence these contracts is examined, through an analysis of the effects of the distribution of marginal cost parameters and the shadow cost of public funds. Furthermore, properties of these contracts are discussed and compared with the revenue-compensated BOT contracts under symmetric cost information.

Incentive contracts with demand guarantee in BOT toll road projects

Demand uncertainty is a significant issue faced by both the government and private firms in build-operate-transfer (BOT) toll road projects. To encourage private firms' participation, the government usually provides them with demand guarantee. This paper investigates and compares the optimal BOT contracts with the minimum demand guarantee (MDG) and the flexible demand guarantee (FDG), respectively, in environments of symmetric and asymmetric information. It is determined that under the MDG with asymmetric information, the private firm's optimal effort decreases with respect to the guarantee level, which indicates that the MDG provides the private firm with a disincentive to exert effort to increase traffic demand. Under the FDG with asymmetric information, the private firm's optimal effort decreases with respect to the guarantee level and threshold coefficient. Through a comparison of the environment with asymmetric information, the optimal toll price, optimal guarantee level and resulting social welfare are higher under the FDG for a small threshold coefficient. Therefore, it is concluded that the government may choose the FDG instead of the MDG for a small threshold coefficient, which means that the FDG is suitable for toll roads with relatively low demand. Conversely, the government prefers to choose the MDG instead of the FDG when the threshold coefficient is large enough, which means that the MDG is suitable for toll roads with relatively high demand. We further demonstrate that our model results still qualitatively hold when traffic congestion is considered.

Risk Assessment in BOT Contracts using AHP Technique

The process of risk assessment in the build-operate transfer (BOT) project is very important to identify and analyze the risks in order to make the appropriate decision to respond to them. In this paper, AHP Technique was used to make the appropriate decision regarding response to the most prominent risks that were generated in BOT projects, which includes a comparison between the criteria for each risk as well as the available alternatives and by mathematical methods using matrices to reach an appropriate decision to respond to each risk.Ten common risks in BOT contracts are adopted for analysis in this paper, which is grouped into six main risk headings.The procedures followed in this paper are the questionnaire method to assign the weights of each criterion and each alternative based on the evaluations of 10 experts in BOT contracts after building the questionnaire model.The appropriate decision was reached to respond to each risk, and then the best measures taken were made based on literature reviews of previous research regarding the procedures for risk response plans.

Appropriate Risk Response Planning of Build Operate Transfer Contracts for the Transportation Projects in Iraq

Abstract The identification of risks in construction projects gives advance indications of the potential risks that may occur during project planning, construction or management. Therefore, identifying those risks and preparing the necessary plans to respond to them is a key detail for the success of the project from its failure. The projects implemented in the manner of a Build Operate Transfer (BOT) contract are accompanied by many risks due to the multiplicity of parties and the multiplicity of their responsibilities, as well as the size of those projects because they are usually associated with infrastructure projects. The aim of this research is to identify the most prominent risks in BOT contracts and the planned response against each risk. The adopted methodology is through conducting interviews and a closed questionnaire (included 77 out of 100 respondents), and the adoption of statistical analysis through the SPSS program and the scale of relative importance.The relative importance index technique was used to rank the risks according to their importance and discuss the reasons for their classification. The results showed a list of the most important risks that would be generated if the BOT contract was applied to transportation projects in Iraq, as well as the appropriate planned response to each risk based on historical information for previous BOT projects.

Modeling the effects of government subsidy and regulation on BOT transport project contract design within contractible service quality

Government subsidy and regulation are frequently employed to encourage the private sector to participate fully in Build-Operate-Transfer (BOT) transport projects. Besides service charge, the service quality of BOT transport project (i.e., maintenance quality, toll service, operational monitoring, emergency management, safety management and so on) is also an important factor affecting the choice of users. This paper studies the optimal service quality decisions in both concession period (CP) and post-CP, in which we assume that the market demand is dependent on both service price and service quality. Firstly, in the absence of subsidy scheme, we derive the related players’ optimal decisions of toll charge, contractible service quality, project capacity and length of CP in the BOT contract design process. Secondly, we investigate how to design an optimal BOT transport project contract when the government subsidizes the private sector. Thirdly, we explore the effects of government regulation policies (i.e., price cap regulation and service quality floor regulation) on the BOT contract design. Finally, we make three extensions to further examine the impacts of the demand uncertainty, the risk-aversion attitude of private sector, the asymmetric cost information and the nonlinear demand function on the BOT contract design. From our model results, some policy implications are derived regarding BOT transport project contract design when the service quality is a fundamental contractible variable.

Optimal BOT contracts in a two-road transportation network

We consider the Build–Operate–Transfer (BOT) contracts for a newly built road within a transportation network which includes another existing free access road. We consider a standard BOT contract in which the firm builds and operates the new road in the concession period and then transfers it to the government in the post-concession period. We find that the government may not prefer the length of concession period as long as possible. Next, we consider a coordinated BOT contract between the government and the firm to form a board to build and operate the new road over the whole life. In such a case, we transform a bi-objective programming problem as a weighted sum of the profit of firm and social welfare of the society. We find that social welfare may not always increase with the government’s weight. Besides, if the government weight is low, the coordinated BOT contract will lead to a wider road than the standard BOT contract, even if the construction cost is high. If the government weight is high, the coordinated BOT contract will lead to a wider road if the construction cost is very low. In other cases, the coordinated BOT contract leads to a narrower road compared to the standard BOT contract.

Optimal build-operate-transfer road contracts under information asymmetry and uncertainty

This study investigates optimal build-operate-transfer (BOT) contracts for toll roads under asymmetric and uncertain information concerning the construction cost of a private firm. In such a contract, the choice of toll, capacity and subsidy is made as a function of the marginal construction cost, reported by the firm, to maximize the expected social welfare, while ensuring that the firm has incentive to participate and no incentive to misreport the cost. By investigating the properties of the optimal contract, we find that enticing the firm to report its information truthfully will increase the optimal volume/capacity ratio of the BOT road. It also causes a loss in social welfare. However, a higher extent of information asymmetry will not necessarily yield greater loss in social welfare, and the effect of the extent of information asymmetry on welfare loss differs when it follows different probability distributions. We also show that the effects of information asymmetry and uncertainty on the BOT contract are amplified by each other. Nevertheless, the welfare loss is not necessarily amplified.

Optimal choice of capacity, toll, and subsidy for build-operate-transfer roads with a paid minimum traffic guarantee

Abstract Government sectors often provide guarantees in build-operate-transfer (BOT) roads to attract private investments. Since a fiscal burden would be incurred from the contingent liability of issuing a guarantee, charging a fee for the guarantee is considered an effective remedy for management of contingent liabilities in practice. This study incorporates the charge mechanism for minimum traffic guarantee (MTG) into consideration, and proposes a method to choose the optimal concession contract variables with a paid MTG. We find that the government sector will specify a lower toll and a higher capacity for a BOT road with a paid MTG. As a result, the society suffers a social welfare loss when providing a paid MTG. Meanwhile, both the charging fee of an MTG and the guaranteed traffic volume would increase the loss of social welfare, which means the incentive mechanism of private participation and the management of contingent liabilities (charging fee for MTG) are all at the expense of social welfare. Moreover, since the welfare loss is magnified under a high marginal social cost condition, the government should set the charging fee and guaranteed traffic volume according to the marginal social cost level. In addition, to obtain more insights, this paper has made two extensions to further investigate the effects of a paid MTG (1) when contracting with a risk averse private investor; (2) when the concession period is an endogenous variable. Based on our model results, this paper derives several policy implications regarding BOT contract design when a paid MTG is provided.

Kontrak Build Operate Transfer (BOT) sebagai Perjanjian Kebijakan antara Pemerintah dengan Pihak Swasta

BOT (Build Operate Transfer) as a form of agreement held by the government policy with private parties is a legal act by the agency or the State administration officials who make public policy as the object of the agreement. Although inherent in him as a body or public official, the government in implementing the contractual relationship with another party (private) legal act is not governed by public law, but based on the laws and regulations of civil law (privaat recht), as the case of legislation that underlie civil legal actions carried out a body of citizens and civil law. The research shows that in a contractual relationship, the government as a party to the BOT contracts have no equal footing with their counterparts. This will be discussed in more depth in the study of law with the approach of juridical normative or study in a BOT contract as an agreement policy.

Financial conflict resolution model in BOT contracts using bargaining game theory

Purpose This study aims to determine the optimal value of concession period length in combination with capital structure in build–operate–transfer (BOT) contracts, based on direct negotiation procurement and considering the conflicting financial interests of different parties involved in the project. Design/methodology/approach The financial model of a BOT project is developed considering all the influencing factors. Then, fuzzy set theory is used to take into account the existing risks and uncertainties. Bilateral bargaining game based on alternating-offers protocol is applied between the government and the sponsor to divide project financial benefit considering the lender’s requirements. Finally, concession period and equity level will be determined simultaneously according to the sponsor’s and government’s share of project financial benefit and the lender’s requirements. Findings The proposed model is implemented on a real case study, and a fair and efficient agreement on concession period length and capital structure is achieved between the government and the sponsor considering the lender’s requirements. It is revealed that being the first proposer in the bargaining process will affect the concession period length; however, it will not affect the equity level. Moreover, it is shown that considering income tax as a part of government’s financial benefit increases the length of concession period. Research limitations/implications The presented model concentrates on direct negotiation procurement in BOT projects where the sponsor and government bargain on dividing financial benefits of project. It is assumed that the product/service price is determined before according to market analysis or users’ affordability. All the revenue of project during concession period is assumed to belong to the sponsor. Practical implications The proposed model provides a practical tool to aid BOT participants to reach a fair and efficient agreement on concession period and capital structure. This could prevent failing or prolonging the negotiation and costly renegotiation. Originality/value By investigation of previous studies, it is revealed that none of them can determine the optimal value of concession period length and capital structure simultaneously considering the BOT negotiation process and different financial interests of parties involved in the project. The proposed model presents a new approach to determine the financial variables considering the conflicting interests of involved parties. The other novelty aspects of the presented model are as follows: introducing a new approach for calculating the sponsor and the government’s share of project financial benefit that will affect the determination of the concession period length and considering the effect of existing risks and uncertainties on final agreement between the involved parties using fuzzy set theory.

Design of build-operate-transfer contract for integrated rail and property development with uncertainty in future urban population

This paper proposes a novel model of the design of a build-operate-transfer (BOT) contract for integrated rail and property (R + P) development when the size of future urban population is uncertain. A real-option approach is adopted to accurately capture the potential economic value of a BOT investment project under uncertainty and its externality effects on urban spatial structure. The proposed model is formulated as a two-stage problem. The first stage of the model optimizes the concession period and rail line parameters (including rail line length, and number and locations of stations) through a Nash bargaining game between a private investor and the government. The second stage determines the headways and fares during the private operation and after transferring the BOT project to the government. The private investor's objective is to maximize its own net profit received during the concession period, whereas the government aims to maximize social welfare over the whole life-cycle of the project. The proposed model is extended to explore the effects of future population jumps due to non-recurrent random events and station deployments with even and uneven station spacings. The results show that compared with the rail-only scheme, the R + P scheme can lead to a win-win situation for the government and private investor. In the BOT contract design, ignoring the effects of population jumps and using an average (or even) station spacing as an estimate of actual station deployment can cause a large bias of the parameter values designed in the contract and an underestimate of project values in terms of expected net profit and expected social welfare.

The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China

Since the concession period is one of the most crucial variables influencing the success of a photovoltaic (PV) power project under build-operate-transfer (BOT) mode, this paper presents a real option game model—which integrates the real option and cooperative game theory—to determine the optimal concession period of the BOT solar PV power project under policy incentives by considering the value of the option to defer. In the proposed model, an effective interval of concession period for the BOT project was identified by using a real option, and the equilibrium value of the concession period was obtained by applying classical optimization theory. To evaluate our model, we empirically determined the optimal concession period for the BOT solar PV power project in China, and a sensitivity analysis was conducted to demonstrate how relevant influential factors, which are presented in the model, affect the equilibrium value of the concession period and its effective interval. The results indicate that the current investment environment in China could successfully implement the BOT solar PV power project under policy incentives, including initial cost subsidy and the feed-in tariffs mechanism. While the high volatility of electricity demand, investment cost, and land-use rent fee can lead the failure of the BOT solar PV project implementation, promoting the technological development of PV power generation, maintaining the market stability, and increasing the policy incentives can help the BOT power project to be arranged with an optimal concession period. In addition, the feed-in tariffs mechanism is more helpful than the initial cost subsidy for winning the BOT contract.

Win-win pricing method for BOT projects using a simulation-based evolutionary optimization

Several failures have been reported in maintaining the Build-Operate-Transfer (BOT) projects viability through their life cycle. BOT contracts are one of the popular tools to respond to fund deficiencies in infrastructure projects, thus it is crucial to determine optimum concession terms for them. In previous research, the value of social benefits has mostly been neglected in the decision-making process, which results in unfair distribution of benefits between the government and the concessionaire. Therefore, a pricing framework based on a Simulation Multi-Objective Optimization (SMOO) method is developed in this research which includes the value of social benefits as well as the effects of uncertainties in BOT projects. The application of the model to a real-world project confirms that it presents a win-win solution in which the benefits of the two contracting parties are simultaneously maximized compared to the results obtained by using conventional methods. The results confirm the contribution of this research to reach a consensus on concession price and to keep the project viability as a result of its ability to cope with the high volatilities through simulation techniques. Furthermore, it can help the decision-makers to either seek a balance between both sides’ interests or determine the concession price based on their preferential strategies.

Determine the factors that affecting on the applicability of Build Operate Transfer contracts for infrastructure in Iraq

The traditional project delivery systems in Iraq is unsubstantial, due to the delays and poor planning to manage these projects within the required quality and within the allocated budget by the public sector. Build Operate Transfer (BOT) approach, considered an option helps the governments to overcome the above problems. This research aims to determine the factors of applicability of BOT for infrastructure project in Iraq. The research initiates with reviewing the references about BOT and fieldwork process, which includes personal interviews and preparing closed questionnaire forms, the distribution of these forms to the sample members of the research to answer questions, collect these forms, and analyze the results statically. By discussing, the results found that the percentages of the factors affecting the applicability of the BOT are in three weights medium, good and very good. The percentage of medium Weight was about 9% and the good weight was about 19%. The very good weight was 72%. In addition to in this research, indicate the political and security stability among the decision factors as the most important, with 72.64% effect on the BOT applicability.

Risk factors associated with procuring university hostel facilities through build-operate-transfer model

PurposeThe build-operate-transfer (BOT) model is fast becoming a sustainable tool for remedying the deficiencies of public financing of hostel facilities in Nigeria. Being a new concept in Nigeria, this study aims to assess clients’ organizations perspective of risk factors associated with BOT model with a view to providing information for their effective management.Design/methodology/approachQuantitative descriptive analysis was used, which was based on primary data obtained through questionnaire survey. The respondents included architects, engineers (structural/civil/mechanical/electrical), builders and quantity surveyors who were officials in the physical planning development and works departments of five sampled universities in the southwestern Nigeria who executed at least one BOT hostel project. A total number of 45 copies of questionnaire were administered, out of which 35 copies representing a response rate of 77.8 per cent were retrieved. Data analysis was undertaken using descriptive statistics: percentages, mean item score and relative importance index.FindingsSeverity of the risk factors specific to BOT model for hostel development was revealed. Besides, conceptual allocations and mitigation measures were suggested against each risk factor.Practical implicationsPrivate sector investor would find the results of this research useful in preparing robust BOT contract packages through the understanding of the nature of risk factors associated with the procurement model.Originality/valueWith limited evaluation of BOT in hostel facilities procurement, this study developed a simplified approach to management of risk factors associated with BOT model in the education sector.

PPP Renegotiation Framework based on Equivalent NPV Constraint in the Case of BOT Project: Incheon Airport Highway, South Korea

The contractual type of Build-Operate-Transfer (BOT) is becoming a more common delivery method of Public-Private Partnerships (PPP) for infrastructure projects. However, their implementation is not seamless due to a number of factors including uncertainty in future demand, which discourages participation of private investors. In response, governments often provide Minimum Revenue Guarantee (MRG) which is a contractual clause that can be invoked if project revenue falls below the guarantee threshold. While MRG does not provide an upfront subsidy such as a grant, it exposes the governments to significant financial liability. In 2001, the South Korean government partnered with a consortium of private investors to deliver the Incheon Airport Highway using the BOT framework. The MRG clause was also an integral part of the BOT contract with the total net additional liability to the government exceeding $1.5 billion. This case study paper presents a renegotiation framework that is based on the equivalent NPV constraint condition. The implementation results show that the partners can find a set of alternative solutions that reduce government financial exposure while maintaining the private sector’s NPV.

AKIBAT HUKUM PEMBATALAN PERJANJIAN BOT (BUILD OPERATE TRANSFER) YANG DIBATALKAN SECARA SEPIHAK OLEH PEMEGANG HAK ATAS TANAH (STUDI KASUS : PUTUSAN N0. 97/PK/PDT/2017)

The investment activity has grown up rapidly in Indonesia. Indonesia needs to do some infrastructure developments. The goverments offers one of the investment to their people, in form of Build Operate Transfer Contract. Under a Build Operate Transfer Contract, an entity ussually a goverment grants a concenssion to a private company to finance, build, and operate a project. The private company usually operates the project for a time periode with the goal of recouping its investment, then transfers control of the project to the goverment. In Fact some contracts has been cancelled by one side, the landlord. One of them is the contract between PT Sarana Pembangunan Palembang Jaya and PT Tradeways International. The landlord accuses the investor to do his obligations without good intentions.This research method is normative. Impact form tort whose done by the landlord with using secondary data source and primary, secondary, and tertiary legal source. However, the cancellation of the contract by one side has not fulfilled all the elements that is containin Article 1266 Indonesian Civil Code. The consequences behind that is the landlord must pay the compensations.

Impact of government subsidy on BOT contract design: Price, demand, and concession period

Private provision of logistics infrastructure through build-operate-transfer (BOT) contracts has become increasingly popular worldwide. These contracts involve incentive conflicts between private sector concerning profit and government concerning social welfare. To coordinate the incentive conflicts, the government usually subsidizes the private sector in practice. In this paper, we propose a stylized model to illustrate how to design an optimal BOT contract with government subsidy. We first derive optimal subsidy levels for the government to obtain optimal social welfare, given concession periods. We further observe that there exist both a substitution effect and a complementary effect between the concession period and the subsidy level. For the former (latter), the subsidy is decreasing (increasing) in the concession period, and the substitution effect can be strengthened if the government has subsidy budget constraint. Interestingly, we find that the private sector does not always prefer the longest concession period. A concession period less than the lifetime of the infrastructure may be more beneficial for the private sector. In contrast, the government's preferred concession period can be either zero or the longest concession period, depending on the unit construction cost and the government's inefficiency cost. We further find that, the incentives of the government and the private sector over the concession period can be aligned when the unit construction cost is low and the government's inefficiency cost is high. We also find that their incentives over the infrastructure's capacity utilization are always aligned throughout the BOT periods.

Analysis of optimal BOT highway capacity and economic toll adjustment provisions under traffic demand uncertainty

For planning a build-operate-transfer (BOT) highway, a rigid contract between a government and private firms with fixed capacity and economic toll adjustment (ETA) provisions to traffic demand variations is practically adopted to cope with the risk caused by uncertain traffic demand. This study develops a two-stage stochastic programming model to determine its optimal highway capacity and ETA strategy, and deeply analyze some insightful properties of this type of contract. Finally, it is compared with two other “very rigid” single-stage BOT contracts with the fixed toll and capacity provisions.