What is a BOT contract? Important terms to note when drafting

Article overview

What is a bot contract? This is a form of construction investment contract in which the investor will be responsible for constructing, operating and transferring the project to the State after an agreed period of time. This model helps mobilize capital effectively and reduce the financial burden on the public budget. However, when drafting a BOT contract, the parties need to pay attention to important provisions to ensure that rights and responsibilities are clearly and fairly delineated.

Important terms to note when drafting a BOT contract
Important terms to note when drafting a BOT contract

What is a BOT contract? Characteristics of this type of contract

Pursuant to Point a, Clause 16, Article 3, Point a, Clause 1, Article 45 of the Law on Public-Private Partnership Investment 2020, a BOT contract is a contract in which the investor or PPP project enterprise is granted the right to build, business and operation of works and infrastructure systems within a certain period of time; At the end of the term, the investor or PPP project enterprise transfers the project and infrastructure system to the State. The concept of PPP projects is explained in Clause 9, Article 3 of the Law on Public-Private Partnership Investment 2020.

Outstanding features of BOT contracts are:

  • Investors not only build but also operate and exploit the project for a long period of time (usually from 10 to 30 years) to recover capital and profits from service fees.
  • The investor is the party responsible for the initial investment capital, construction costs, and bears all risks during the operation phase of the project (such as the risk of not collecting enough fees to pay back capital or operating costs higher than expected).
  • After the concession period expires, the investor must transfer the project back to the State without requiring additional payment.

This distinguishes BOT contracts from other PPP contracts such as BTO (transfer of works after construction), BOO (retention of ownership of works), and BLT (lease before transfer).

Basic content of BOT contract

Because a BOT contract is a type of contract under a PPP project contract, the BOT contract will also have some basic contents specified in Article 47 of the Law on Public-Private Partnership Investment 2020 specifically:

  • Project objectives, scale, location and progress;
  • Scope and technical requirements, technology, and quality of works;
  • Total investment and financial plan;
  • Conditions for using land and other resources;
  • Responsibilities in construction, inspection and supervision;
  • Operate, exploit and transfer projects;
  • Guarantee of contract performance and property ownership;
  • Solution plan in case of fundamental change in circumstances;
  • Information security and reporting regime;
  • Modify, supplement, terminate the contract;
  • Incentives, investment guarantees and revenue sharing;
  • The law governs contracts and resolves disputes.
Contents of the BOT contract
Contents of the BOT contract

Note some important terms when drafting a BOT contract

When drafting a BOT contract, there are a number of important provisions that need special attention to protect the interests of all parties and ensure the success of the project. Below are the core elements that need to be agreed upon in the contract:

  1. Risk allocation between the State and investors:

The first important provision is reasonable risk allocation between the State and investors. Risks may include policy changes, financial risks, or uncontrollable factors. Clearly defining the responsibilities of each party in facing these risks will help protect rights and ensure stability during project implementation.

  1. Price and service fee adjustment mechanism:

An equally important provision is the mechanism for adjusting prices and service fees. Project service fees (Ex: bridge tolls, highway tolls) need to be adjusted reasonably, ensuring not only the interests of investors but also fairness to users and in line with the socio-economic situation. Agreements on price adjustments need to be specific and transparent to avoid future disputes.

  1. Clause on force majeure:

Force majeure events (such as natural disasters, war, legal changes) need to be clearly specified in the contract. Clearly specifying these situations and how they will be handled when they occur will help minimize disputes, especially when there are sudden changes in circumstances that impact the project schedule or cost.

  1. Project transfer process:

One of the important issues when drafting a BOT contract is the process of transferring the project after the contract term ends. This must be agreed upon in detail from the beginning regarding technical requirements, legal procedures and responsibilities of the parties to ensure that the project is transferred smoothly, with the right quality and without arising disputes.

  1. Dispute resolution mechanism:

It is necessary to establish an effective dispute resolution mechanism to handle any conflicts between the parties during the contract implementation process. Clearly defining dispute resolution methods (mediation, arbitration, court) helps ensure the rights of both the State and investors, while maintaining the progress and efficiency of the project.

Some important notes when drafting a BO contract
Some important notes when drafting a BO contract

Consulting on negotiating, drafting and signing BOT contracts for businesses in Long Phan

BOT contract is a type of contract that has a great impact on the process of implementation, operation, and transfer of projects to the State. Given the complexity of financial, and liability factors, ensuring contract terms are accurate and transparent is extremely important. Understanding this, Long Phan, with experience and a team of knowledgeable experts in the investment field, provides services related to the signing and implementation of comprehensive BOT contracts. Including:

  • Consulting on BOT contract negotiation strategy: Identify the most important and optimal factors in the negotiation process, helping you reach beneficial agreements.
  • Drafting professional BOT contracts: We help you build BOT contracts to ensure protection rights and avoid risks throughout project implementation.
  • Building financial structure and investment plan: Providing optimal financial solutions for BOT projects, ensuring a balance between capital and future profits.
  • Ensuring Regulatory compliance: Ensuring BOT contracts fully comply with current regulations and requirements from competent state agencies.
  • Representing negotiations with partners and State agencies: Supporting you in negotiations, from dealing with related parties to submitting procedures to State management agencies.
  • Resolving contract disputes: Providing consulting services to resolve disputes arising during the implementation of BOT contracts, protecting your legal rights.
  • Project transfer and management consulting: Guide the process of transferring contracts and assets after the project is completed, ensuring all procedures take place in accordance with regulations and protect the interests of participating parties.

With a team of consultants with many years of experience in the field of investment consulting, when coming to Long Phan, you will not only receive in-depth advice but also receive comprehensive support from the negotiation stage until the BOT contract is perfectly implemented. Contact us immediately via the hotline: 0906735386 for detailed advice and timely support!