BOT (Build, Operate and Transfer) an alternative to traditional data conversion and management
Prime project methodology
The second most popular execution strategy is to select a prime contractor who will lead the implementation
of the overall project. The prime takes the financial and project risks, including those
of the supporting sub-contractor(s). This prime company can be the technology provider, a systems
integrator, the application provider, data conversion company, or professional agent. Flowchart B
describes the basic steps in using a prime instead of administrating your project internally.
Flowchad B - AM/FM '*Prime"Project Methodology
| Advantages |
Disadvantages |
1) Only one contractor to deal with in regards to:
- contracting
- schedule
- production problems
- integration issues
|
1) You may not get the exact solution you want.
2) You may get built-in bias for seection of vendors.
3) Through onerous terms, may get negative project team environment.
4) More onerous contract T&C' |
BOT project methodology
A third alternative, which can possibly provide a combination of flexibility, shared risk and partnering,
is the "Build-Operate-Transfer" or BOT approach.
What is it?
Build-Operate-Transfer is a project financing and operating approach that has found an
application in recent years primarily in the area of infrastructure privatization in the developing
countries. For these countries, financial markets are shifiing the way in which debt capital is
raised to fund the development of infrastructure. In the past, debt was raised directly from
multilateral and export credit agencies or from sovereign governments themselves to provide
turnkey financing. Recently, infrastructure developers have turned increasingly to portfoliostyle
credit in the form of capital pools, operating concessions and stand-alone utilities. This
has changed the traditional contractor's role from being a service provider to being a business
partner in the operation of the enterprise. Given the success of the BOT approach in the capital-
intensive, high-risk credit environment of international infrastructure development, there
may be a real opportunity for the application of the BOT approach in the operation of utilities
and other businesses in a domestic setting also. BOT as used in this paper actually refers to
several financing and operating approaches which are outlined later, however the term BOT
will be used in it's descriptive generic sense.
How does it work?
While the term BOT is a relatively new one, the concept has been in operation for centuries.
Most of the early turnpikes and canals in this country operated on the principle that a grantor,
usually but not always a government body, would offer an operating license to a concessionaire
for a long term contract to develop and operate a transportation company with exclusive rights
to a length of road or river. Over time, the concept was extended to include frontier postal
services, local telephone services, electrical utilities and many municipal service functions
such as land management. In this way, infrastructure upgrades were financed without public
finding, and a method of long-term payback from operating revenues was established with a
contract period deemed lengthy enough to make the operating concession a lucrative project.
In the modern setting, a cash-strapped corporation, municipality, county or state will enter into
a profit sharing agreement with a concessionaire. This profit sharing principle is the key aspect
differentiating the BOT approach from the outsourcing arrangements commonly undertaken in
this country. The concessionaire will operate as an independent business organization contractually
accountable for a series of technical, operational and service related goals. The contract
will often be setup such that the risk of revenue fluctuation is offset to the concessionaire by
means of a fixed fee payment obligation to the owner. The upside to this arrangement,
however, can be considerable if revenues are better than anticipated. Obviously, a well-crafted
business plan for the concessionaire including carefid financial modeling and disciplined
cost-control procedures will be essential.
A number of variations on the Build-Operate-Transfer theme have emerged from the experience
of international infrastructure development. These differ mainly in the exact ownership
and payment arrangement between the owner and the concessionaire on completion of the
construction portion of the contract. The main approaches are summarized below:
| Build-Transfer-Operate |
Build-Own-Operate |
Build-Transfer-Operate |
Build-Lease-Transfer |
| The contract will specifi
the upgrade and operation
of the enterprise
by the concessionaire
for a fixed period of
time followed by the
transfer of all facilities
and equipment back to
the owner.
|
The concessionaire
is essentially buying
the basic facility
in installments
from the owner,
with the facility and
it's upgrades provided
as security
over the repayment
period. On completion
of the contract,
ownership reverts
to the concessionaire.
| The concessionaire
builds and transfers a
facility to the owner
but exclusively operates
the facility on behalf
of the owner by
means of a management
contract.
| The concessionaire
builds a facility,
leases out the operating
portion of the
contract, and on
completion of the
contract, returns the
facility to the owner. |
