Consulting on types of PPP public-private partnership contracts in Long Phan

PPP public-private partnership contract is a written agreement between a competent state agency and investors and PPP project enterprises to implement infrastructure development and public service projects. Depending on the scale and investment field, types of PPP contracts such as BOT, BTO, BOO, and O&M will be used. In this article, Long Phan will provide customers with detailed information about types of PPP public-private partnership contracts.

Regulations on PPP project contracts

A PPP project contract is a written agreement between a competent state agency and an investor or PPP project enterprise to implement infrastructure development projects and public services. Regulations on PPP contracts are clearly stated in the Law on Public-Private Partnership Investment 2020. This is the legal foundation for implementing projects, ensuring the rights and obligations of participating parties.

Competent authority and agency signing PPP project contracts

Pursuant to Article 5 of the Law on Investment according to the public-private partnership method 2020:

Competent authorities include:

• Ministries, ministerial-level agencies and central agencies.
• Provincial People’s Committee.
• Other agencies authorized by the Government or Prime Minister.

In addition, agencies signing PPP project contracts include:

• The competent authorities are mentioned above;
• And agencies and units authorized by competent authorities to sign contracts.

These agencies represent the state in negotiating and signing contracts with investors or PPP project enterprises. These are the partners responsible for ensuring the implementation of projects according to commitments.

Basic content of PPP project contract

According to Article 47 of the Law on Public-Private Partnership Investment 2020, the PPP contract must include basic contents such as:

• Objectives and progress: Determine objectives, scale, location, construction time and contract validity.
• Technical requirements: Scope and requirements for technology, quality of works, products and services.
• Finance: Total investment, capital structure, financial plan, public service prices and related state capital.
• Conditions for resource use: Land regulations, compensation, resettlement, and environmental protection.
• Implementation responsibilities: Licensing procedures, design, construction and quality management.
• Operation and transfer: Responsibility for project operation and transfer procedures.
• Contractual security: Ownership, obligations of the parties and guarantee agreement.
• Handling changes: Plans in case circumstances change and measures to handle violations.
• Information security: Responsibility for providing information and reporting.
• Modification of contract: Principles of modification and transfer of rights and obligations.
• Investment incentives and guarantees: Incentives, revenue sharing and insurance.
• Governing law: Regulations on relevant laws and dispute resolution mechanisms.

The contract must strictly comply with the prescribed conditions to ensure the rights and obligations of both parties, the state and the investor.

Types of PPP public-private partnership contracts

According to Article 45 of the Law on Public-Private Partnership Investment 2020, types of PPP contracts are divided into two main groups:

Group 1: Contract to collect fees directly from users. Include:

1. BOT Contract (Build – Operate – Transfer)

BOT contracts are the most common form of PPP contracts. In this contract, the investor or project enterprise builds an infrastructure project, then operates and exploits the project for a certain period of time to recover capital and profits. After this time, the investor will transfer the project to the state. The investor is responsible for all investment, construction, management and operation costs of the project. The state has the right to control the project implementation and exploitation process.

For example: Transportation projects such as bridges, highways, and airports often use BOT contracts. After construction, investors can collect fees directly from users during the exploitation period.

Advantage:

• Reduce the financial burden on the state.
• Enhance the participation of the private sector in national infrastructure development.

Risk:

• Investors face revenue risks, depending on the number of people using the service.
• The State needs to ensure that the project transfer process after the expiration of the exploitation period takes place smoothly.

2. BTO Contract (Build – Transfer – Operate)

A BTO contract is a type of contract in which the investor or PPP project enterprise builds the project and immediately transfers it to the state upon completion. However, investors still have the right to operate and exploit the project for a certain period of time to recover capital and profits.

For example: Projects such as wharves or traffic works can apply for BTO contracts. After construction, the project will be transferred to the state, but investors will still have the right to exploit the service for a limited time.

Advantage:

• The state owns from the beginning, helping to strictly manage and control public assets.
• Investors have time to recover capital but are not under pressure to hand over the project at the end of the operation period.

Risk:

• If revenue does not meet expectations, investors may have difficulty recovering capital during the exploitation period.

3. BOO Contract (Build – Own – Operate)

In a BOO contract, the investor or project enterprise will build, own and operate the project without having to transfer it back to the state after the end of the operating period. The investor will own the project throughout the exploitation period and will only terminate operations when the contract expires. The investor owns the entire project. The state can control policy, but does not own the project.

For example: Projects providing energy, clean water or waste treatment can apply BOO contracts, where the investor continues to own the project after completion.

Advantage:

• Investors have long-term ownership, without pressure to transfer the project.
• Attract private investment into long-term profitable projects.

Risk:

• The risk of the ability to manage and use capital belongs to the investor if the project does not bring in expected revenue.

4. O&M Contract (Operate – Manage)

O&M contract is a type of contract in which the investor or project enterprise is granted the right to manage and operate the state’s available infrastructure projects for a certain period of time. The state is still the owner of the project. Investors do not bear construction costs, only focusing on operation and management. The state maintains ownership and supervision.

For example, projects such as water supply system management, airport management, or highway systems can apply the O&M model.

Advantage:

• The State saves management and operation costs and improves the quality of public services.
• Investors have the opportunity to participate in infrastructure management without large initial investments.

Risk:

• Operational efficiency risk belongs to the investor.
• The state needs to closely monitor to ensure the quality of services provided to the people.

Group 2: Contracts paid by the state according to service quality. Include:

1. BTL Contract (Build – Transfer – Lease)

In a BTL contract, the investor builds the project and transfers it to the state immediately upon completion. After that, the investor continues to provide services on the basis of operating and exploiting the project within the prescribed time. The state will pay investors based on the quality of services provided. Investors do not directly collect fees from service users but receive payment from the state. The state controls service provision and project management.

For example: Projects related to public works such as schools and hospitals can apply for BTL contracts.

Advantage:

• Investors receive payments from the state, ensuring stable cash flow.
• The state controls the quality of public services provided to the people.

Risk:

• The State must ensure there is capital to pay investors after handing over the project.

2. BLT (Build – Lease – Transfer) Contract

A BLT contract is a type of contract in which an investor builds a project and then leases it back to the state for use for a certain period of time. After the lease period expires, the project will be transferred back to the state. The state does not have to make a large initial investment, but only pays over the rental period. The investor recovers capital from the rental and transfers the project back after the term expires.

For example: Projects related to administrative facilities, conference centers, or public works can apply for BLT contracts.

Advantage:

• The state can use the project without investing from the beginning.
• Investors have income from rentals throughout the contract period.

Risk:

• Risks regarding project quality when transferred back to the state after the contract ends.

These types of contracts all have their own conditions regarding rights, responsibilities and ownership of the invested project.

The role of PPP contracts in the current economy

PPP public-private partnership contracts play an important role in socio-economic development and improving the quality of public service infrastructure. Specifically:

• Mobilizing social resources: The State can mobilize capital from the private sector to solve the problem of budget shortages for large projects such as transportation, health care, and education.
• Improve investment efficiency: The private sector with management experience and modern technology helps improve project efficiency, reduce costs and implementation time.
• Reasonable risk allocation: PPP is a tool to help share risks between the state and investors. The State is responsible for policy and social issues; while investors bear performance and capital risks.
• Promoting reform in public investment management: PPP is considered a tool to help reform the field of public investment management, enhancing transparency and accountability in projects using state budget.
• Ensuring sustainable benefits and serving the community: PPP public-private partnership contracts aim for sustainable benefits for the community through providing public services and developing infrastructure to serve the benefits of society.

Applying the PPP model not only helps enhance infrastructure development but also contributes to macroeconomic stability and reduces the financial burden on the state.

Consulting services for all types of PPP public-private partnership contracts in Long Phan

Long Phan provides comprehensive consulting services on PPP public-private partnership contracts, supporting customers in drafting, negotiating and signing contracts with state agencies. We have a team of experienced experts who understand the legal regulations and practices of implementing the PPP model in Vietnam.

Scope of our consulting services

Our consulting services for PPP contract types include:

• Consulting on legal regulations related to PPP and necessary legal procedures during project implementation;
• Consulting and assisting customers in identifying and choosing the appropriate contract type;
• Consulting and supporting customers in preparing and drafting documents for PPP project approval;
• Evaluate the feasibility and effectiveness of the project based on economic, social and environmental criteria.
• Representing customers to submit documents to competent authorities;
• Representing customers to work with agencies during the application review process;
• Providing legal solutions to handle disputes arising during contract implementation;
• Consulting on methods of negotiation and dispute resolution through mediation or arbitration.
• Consulting on other related issues

Benefits when using our services

When using consulting services from us, customers will receive benefits such as:

• High expertise: Our team of experts has extensive experience and knowledge of PPP contracts, ensuring the provision of optimal solutions suitable to the specific needs of the project.
• Save time and costs: We help customers shorten the project implementation process, helping you focus on the main activities of the project.
• Minimize legal risks: With our understanding of relevant laws and regulations, we will assist customers in detecting and promptly handling legal issues, minimizing the risk of disputes.
• Comprehensive consulting: We provide diverse consulting services from project documentation, financial analysis, to dispute resolution, helping customers get an overall and complete view of the project.
• Optimize project efficiency: We support the development of effective financial and technical options, helping to improve the likelihood of project success and profitability.

Choosing professional consulting services in the field of public-private partnership (PPP) contracts not only brings practical benefits but also helps customers build a solid foundation for the success of the project. With a team of experienced experts, Long Phan will support customers in the most comprehensive and optimal way. Please contact us via hotline 0906735386 for quick and effective support.