BOOT Contract Definition: Everything You Need to Know
A P3 project model where private organizations conduct large development projects under contract to public sector partners such as governmental agencies.3 min read
2. Variations of the BOOT Project Model
3. Examples of BOOT Projects
4. Understanding the BOT Project Model
5. Elements of P3 Concession Models
6. Major Differences
Boot contract definition: A private-public partnership (P3) project model where private organizations conduct large development projects under contract to public sector partners such as governmental agencies.
A BOOT (build, own, operate, transfer) project is seen as a means of developing large public infrastructures with private funding. The public sector partner enters into a contract with private developers, usually a consortium of businesses with experience and expertise in a particular industry or a corporation that specializes in designing and implementing large projects.
How BOOT Projects Work
The public sector may provide some funding or other benefits, such as tax exemption; however, the private sector partner assumes all risks associated with maintaining, operating, constructing, and planning the project within the specified time period.
During the specified period, the private sector developer makes a profit by charging individuals using the infrastructure. At the conclusion of the project, the private sector partner transfers the ownership of the infrastructure to the public sector partner, for the amount specified in the contract. These kinds of contracts are usually long-term and can extend up to 40 years or more.
Variations of the BOOT Project Model
Some variations of the BOOT project model include:
- BLOT (build, lease, operate, transfer)
- BLT (build, lease, transfer)
- DBOT (design, build, operate, transfer)
- BOO (build, own, operate)
Under the BLT model, the public partner leases the infrastructure from the contractor after construction. Once the specified period ends, it takes ownership.
Examples of BOOT Projects
A BOOT project is operated by the private sector company for perhaps 30 years or more in a bid to recoup its investment before transferring ownership to the government. Examples of BOOT projects include power plants in the Philippines, waste treatment facilities in China, and highways in Pakistan.
Understanding the BOT Project Model
The BOT model refers to a build, operate, and transfer project model. In the instance of a power plant that is built under a BOT project model, the government can enter into a power purchase agreement where a government entity acts as an offtaker, or person who is buys goods or services. In this case, the offtaker purchases electricity from the privately built and owned plant.
As part of a concession, the private sector partner could alternatively sell directly to public users without the need for a government intermediary. The BOT agreement often stipulates the minimum and maximum prices an offtaker can pay.
Both of the above models are PPP (P3) concession models. Under these models, the Authority — usually a public sector agency, the government, or a private entity — gives the private sector partner a concession to plan, design, build, finance, and operate the infrastructural development.
Such concession models operate differently from private sector models when it comes to:
- Ownership control
- Technical collaboration
- Risk sharing
- Project duration
- Level of investment
- Performance management
- Cash flow management
- Tax treatment
- Mode of financing
Elements of P3 Concession Models
The BOOT and BOT models have several elements in common. In both models:
- Enterprise customers get access to operating capital, knowledge, expertise, and technology.
- The private sector partner assembles the technology, processes, and personnel needed to complete the project as an outsourcer under classic outsourcing models.
- After the prearranged length of time, the private sector partner (i.e. the service provider) transfers the infrastructure and service delivery operation over to the enterprise customer.
In a BOOT contract, the enterprise customer enjoys the benefit of not having to finance the public infrastructure, new service delivery platform, or service center. Under this project model, the private partners own, finance, and build the infrastructure and then manage it for a fee.
The private partner is responsible for every activity from building to ownership and management. After building the infrastructure, the private partner owns and operates it for the agreed upon time period while collecting revenue to enable it to recoup its investment before transferring it to the government.
Under the BOT model, the financing for the infrastructure or service delivery platform is provided by the enterprise partner. The private partner doesn't own the development, but covers its operating expenses by managing it for a fee.
The BOT model allows the private partner to design, build, and operate the infrastructure for an agreed upon period before transferring it back to the public sector partner.
If you need help understanding a BOOT contract, you can post your legal need on the UpCounsel marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from prestigious law schools like Yale Law and Harvard Law and usually have 14 years of legal experience, including work on behalf of or with companies like Airbnb, Menlo Ventures, and Google.