A Build Own Operate Agreement (BOO) is an infrastructure project implementation and delivery model used in public-private partnerships (PPP). It rules how a private entity finances, builds, owns, and operates infrastructure projects for a specified period.

Unlike other PPP models (i.e. Build-Operate-Transfer (BOT), the facility ownership remains with the private entity indefinitely. This model is often used for large-scale infrastructure projects, i.e. power plants, water treatment facilities, and transportation networks.

Structure of a B.O.O Contract

• In a Build Own Operate (BOO) contract, the private sector entity assumes significant responsibilities and risks:
• Financing: The private entity secures the necessary funding, often through equity, debt, and government grants.
• Design and Construction: The private entity designs and constructs the facility, ensuring it meets required specifications and standards.
• Ownership: The private entity retains ownership of the facility during and beyond the contract, ensuring a long-term revenue stream.
• Operation and Maintenance: The private entity operates and maintains the facility, ensuring efficient and effective functioning.

Benefits of Build-Own-Operate Contracts

• Efficiency and Innovation: The private sector brings efficiency, innovation, and expertise to design, construction, and operation.
• Risk Allocation: Risks are allocated to the party best able to manage them, with the private sector bearing construction, financing, and operation risks.
• Cost Savings: The competitive nature of the private sector leads to cost savings in development and operation.
• Quality of Service: The private entity’s profit ties to the quality and efficiency of the service provided, incentivizing high performance.
• Long-Term Investment: BOO contracts attract long-term private investment in infrastructure sectors, reducing the burden on public finances.

Challenges of B.O.O Contracts

• Complexity: BOO contracts are complex and require detailed negotiation and clear delineation of responsibilities.
• High Initial Costs: The private entity must secure substantial upfront financing, which can be challenging and may require high-interest rates or equity premiums.
• Regulatory and Legal Risks: Changes in regulations or political environments can impact the project’s feasibility and profitability.
• Public Opposition: There may be resistance to private ownership of critical infrastructure, especially in sectors traditionally managed by the public sector.

Typical Applications

• Energy: Private companies build and operate power generation facilities, including renewable energy plants like solar or wind farms.
• Water and Waste Management: Private entities develop water treatment and waste management facilities under BOO contracts, ensuring efficient service delivery and environmental compliance.
• Transportation: Private entities operate toll roads, bridges, and tunnels under BOO contracts, collecting tolls as a revenue source.

Comparing BOT and BOO Agreements

Build Operate Transfer Agreement (BOT) and Build Own Operate Agreement (BOO) agreements are public-private partnership models with distinct characteristics.

Build Operate Transfer Agreement (BOT) and Build Own Operate Agreement (BOO) agreements are public-private partnership models with distinct characteristics. 

In the first place, a BOT agreement involves a private company financing, constructing, and operating a project for a set period before transferring ownership back to the public entity, making it ideal for large-scale projects like highways and public transportation systems. 

On the other hand, a BOO agreement allows the private company to retain ownership indefinitely, generating revenue by operating the project long-term, typically used for power plants and utility services. 

Moreover, while BOT agreements involve a transfer of responsibility back to the public sector after the concession period, BOO agreements require the private company to manage all aspects throughout the project’s lifecycle, highlighting differences in risk allocation and operational control. 

Additionally, the private entity in a BOO agreement bears the financial and operational risks for the entire project duration, whereas in a BOT agreement, the public entity assumes these risks after the concession period. 

Similarly, both models involve collaboration between the public and private sectors, but the extent of private sector involvement and risk allocation varies significantly. In conclusion, understanding the differences between BOT and BOO agreements is crucial for effective public-private partnerships in infrastructure development.

References

• Public-Private Partnership (PPP) Models
• Build-Operate-Transfer (BOT) Agreements
• Build-Own-Operate (BOO) Agreements
• Infrastructure Project Financing
• Risk Management in PPP Projects

Find a model of Build Operate Transfer Agreement (BOT) HERE