PPP For Infrastructure Investment Global Report New

Public-private partnerships for infrastructure investment:
a global perspective
MARCH 2021
Contents
Contents
3 Foreword
4 Sponsor overviews
5 Public-private partnerships for infrastructure investment:

11 Australia
16 Canada
22 Colombia
28 The Netherlands
33 Norway
37 Saudi Arabia
43 The UK
48 The US
52 Glossary
2
Foreword
Foreword
As we emerge from the global pandemic, investing in infrastructure is viewed We have also gathered insight from leading infrastructure investors, who are
as even more critical to the development of our global economy and achieving fellow members of the GIIA, to test our findings, and we are grateful for all the
our environmental and social objectives. It is clear to all that governments input we have received from:
need to translate political rhetoric into reality.
• Michele Armanini (Greenfield Managing Director, InfraCapital)
The UN’s Sustainable Development Goals highlight the importance of • Michael Botha (Managing Director, Infrastructure, Brookfield) Martin Nelson-Jones
investing in infrastructure to increase productivity and incomes as well as • Stéphane Duhr (Director, Infrastructure, 3i) Global Chair of Infrastructure, Construction and Transport
deliver improvements in health and education outcomes. Many governments • Nigel Middleton (Partner, UK / Infrastructure, 3i) T: +44 2077 966 704
worldwide have stated their resolve to prioritize infrastructure projects in • Andreea Militaru (Analyst, IFC) M: +44 7738 295 601
order to help their economies to recover post-pandemic. However, the G20- • Darryl Murphy (Managing Director, Infrastructure, Aviva Investors) martin.nelson-jones@dlapiper.com
backed Global Infrastructure Hub identified a USD15 trillion gap in the USD94 • Gijs Voskuyl (Partner, Head of Infrastructure, DIF)
trillion investment that will be needed by 2040 to fund global infrastructure.
It is clear that governments alone cannot bear the financial burden. A Our thanks also go to Jon Phillips from GIIA for his counsel throughout the
reappraisal of the role of private sector investment and appropriate funding development of this report, and finally to Inframation, a leading news and data
models internationally, including various forms of Public-Private Partnerships provider to the infrastructure, energy, power and renewable energy sectors,
(PPP) by whatever name, is both vital and timely. for supplying relevant charts and analysis.
Colin Wilson
Against this background, global law firm DLA Piper has worked with the We hope that this report will assist governments and investors in their Head of International Projects
Global Infrastructure Investor Association (GIIA) to prepare this report which strategic planning for infrastructure projects going forward. If you would like T: +44 2077 966 206
sets out the case for PPPs backed by multijurisdictional analysis in the global more information or to discuss in more detail any of the issues covered by this M: +44 7971 142 564
infrastructure investment market. With our leading global projects and report, please get in touch with either of us or any of the other contacts listed colin.wilson@dlapiper.com
infrastructure practices and in-depth sector experience, we have been able in this report.
to leverage the expertize of our projects and infrastructure partners on the
ground in each of these jurisdictions to assess the case for PPPs and compare
different models.
3
Sponsor overviews
Sponsor overviews
DLA Piper Global Infrastructure

DLA Piper is a global law firm with lawyers located in more
Investor Association
than 40 countries throughout the Americas, Europe, the
Middle East, Africa and Asia Pacific, positioning us to help GIIA is the membership body for the world’s leading
clients with their legal needs around the world. We strive investors in infrastructure, and advisors to the sector, who
to be the leading global business law firm by delivering collectively represent nearly USD1 trillion of infrastructure
quality and value to our clients. We achieve this through assets under management across 55 countries. Our
practical and innovative legal solutions that help our clients members, ranging from fund managers, pension funds,
succeed. Our clients range from multinational, Global insurers and SWFs, are investing today to provide the
1000, and Fortune 500 enterprises to emerging companies smart, sustainable and innovative infrastructure needed
developing industry-leading technologies. We also advise for our communities and economies to thrive.
governments and public sector bodies.
4
Public-private partnerships for infrastructure investment: a global perspective
There are a number of absolutes in our society that are rarely questioned: As mentioned above, we have also spoken to key investors in PPPs to get their HAVE PPPS OUTGROWN THEIR USEFULNESS?
inside insight into whether time is running out for PPPs, or whether they still
• Infrastructure is essential both to ensure good living standards and to have a place in infrastructure investment. In short, no.
improve and support economic growth.
• Infrastructure is resilient and able to help meet global climate change Andreea Militaru of the IFC describes the role of governments very
P3 DEALS GLOBALLY SINCE 2010
targets. succinctly: “A government’s role in providing infrastructure has two distinct
• The private sector has a pivotal role in the development and delivery of elements: (i) guaranteeing certain services to its population and shaping
infrastructure, offering expertise, innovative solutions and private finance. Africa 26 what infrastructure is needed; and (ii) ensuring funding for, and delivery
Asia 209 of, those services and infrastructure.”
What is sometimes less clear is how much certain models of private Australasia 56
investment in infrastructure offer real value for money. In certain countries, Europe 814 There are very few models that offer long-term maintenance of infrastructure
Latin America and Caribbean 286
Public-Private Partnerships (PPPs) have come under intense levels of scrutiny assets on a risk-transfer / whole-life cost basis. PPPs do.
Middle East 44
and criticism, while in other countries they are seen as the key model enabling
North America 266
delivery of infrastructure policies – the range of views held inside and outside What this means for governments is that (i) they don’t need to worry about
the industry is astonishing, but very little analysis has been completed to 0 50 100 150 200 250 300 risk management on a complex asset, as the key risks that can be managed
assess the cause. So what is the truth about PPPs? Region | Deal value (USDbn) by the private sector are allocated to the private sector, which manages them
on an integrated construction / operations basis; (ii) they don’t have to worry
DLA Piper, in partnership with the Global Infrastructure Investors Association Rest of region Norway about budgeting for high-value assets, given that a financial model does this
(GIIA), has undertaken a comparative review of the approach to PPPs in the Australia Saudi Arabia
for them, providing a high degree of visibility on future spending; (iii) they
following countries: can take comfort in value for money and the robust structuring of the PPP
Canada UK
given the levels of scrutiny and forward-looking discipline applied to these
Colombia USA
• Australia • Norway structures before they are implemented and on an ongoing basis (including
Netherlands Number of deals
• Canada • The Kingdom of Saudi Arabia by senior debt funders). These elements drove the establishment and
• Colombia • The UK development of the model and resulted in its early praise.
Source: Inframation
• The Netherlands • The US
5
COUNTRIES COVERED IN THIS REPORT Our analysis clearly demonstrates that PPPs have a number of advantages
that cannot easily be replicated with other models:
• Projects run to time and budget: there is a recognition that, on the

whole, PPP projects tend to be delivered on time and on budget when
compared to alternate procurement models. This is largely due to the
risks associated with delays and cost overruns being placed on the
private sector; a clear and objective way in which to assess the model and
garner public support.
Canada Norway
• Better risk management: the principle that risks are allocated to
The UK The Netherlands the party that is best placed to manage them enables better risk
management and mitigation. Relevant recent examples include the
provision of project continuity even with high-profile supply chain
The US
insolvencies. This maximization of expertise is a strategic way to harness
“best in class” delivery.
Saudi Arabia
• Delivery of value-for-money efficiencies: evaluating on a value-for-
money basis allows governments to make certain cost / capability trade-
Colombia
offs to realize a solution that may not be the cheapest, but does offer
the end-user a better value asset overall. The key here though is data to
support the premise.
• Innovation: the government operating on an output basis and
Australia
contracting a full-life service enables the private sector to realize
efficiencies not only during the construction phase, but also ensuring
assets are well maintained and operated to meet handback / usable life
requirements. It also paves the way for flexibility and a dynamic evolution
of the model and, in turn, the infrastructure itself.
6
WHY THE CRITICISM THEN? • Structuring / procurement costs: the number of parties involved in the
project structure (and each of their advisors), as well as the complexity and
It is important to recognize the criticisms, however, which include value of the assets in question add additional costs. The criticism being
the following: that this leads to layering of cost and time and bureaucracy, while not
necessarily recognizing the benefits that this also brings.
• Higher financing costs: it is generally accepted that the cost of private
finance is higher than public finance. It is worth recognizing, however, From our analysis and discussions with the investor community, there is no
that in many jurisdictions this is accepted as a price worth paying for the doubt that these criticisms can be overcome through best practice and a
advantages a PPP brings. number of key ingredients to deliver a winning solution.
• Margin pressures / insolvency risk: to combat some of the criticism
around the cost of PPPs and to justify the approach, in evaluating tenders
/ awarding contracts, governments have generally required cheaper WHAT MAKES A SUCCESSFUL PPP?
solutions from bidders (without the corresponding reduction in risk). These
lower margins have, in some instances, caused issues leading to insolvency Preparation, support and planning
and project failures; notably, the collapse of Carillion in the UK which saw With any infrastructure project, the first decision that will need to be made by
the majority of assets operate with service continuity (due in part to the a procuring authority is which model to adopt for the project – considering
PPP model), but was not without its challenges for both the public and its size, complexity and sector. While not suitable for every project, there is
private sectors. Additional developments of the model incorporating a consensus that PPPs are still a good model for a number of asset classes,
“lessons learned” from operational projects could help with mitigating this but it is the preparation in the structuring and competition of the project that
issue, but reflective learning has been limited (at industry level) to date. helps realize the true benefits.
• Insufficient flexibility: given the length of time that PPP contracts
the capital expenditure,” explains Andreea Militaru (Analyst, IFC) (as the
are in place (typically 25-30 years), there is a degree of inflexibility as it Global markets have shown that the importance of thorough, considered and
public sector will typically be able to access cheaper financing itself), rather
is not always easy to foresee, and provide for, all possible variations / consistent preparation across all government agencies before launching any
the expertise, innovation and additional scrutiny that comes with private
eventualities in the project documents. Change protocols provide a degree project or pipeline is key for all infrastructure projects, but, given the number
sector involvement.
of flexibility, but changes to complex assets can often be expensive and of stakeholders involved and their complexity, this is particularly relevant for
time consuming given the wider project structure. There is a “real life” PPPs. “For the public sector, this preparation should involve an element “Those jurisdictions that have de-politicized PPPs have seen the most
element missing in some of the models which do not reflect the realities of front-loading to produce a robust business case that has considered public acceptance of the model,” observes Gijs Voskuyl (Partner, Head
of infrastructure as a living, breathing part of society, but this could of the longevity and future demand and use of the asset(s) in question,” of Infrastructure, DIF). However, it is important to have political champions
course be addressed in future iterations. It is worth recognizing, however, says Darryl Murphy (Managing Director, Infrastructure, Aviva Investors), to drive PPP policy and pipeline because “this ensures there is sufficient
that there aren’t many models (involving private sector and public sector as well as the relevant sector strategy and budget. Despite being cited as a political memory as to why an asset was procured as a PPP in the
parties working alongside one another) that provide greater flexibility than key benefit of the model, “an authority’s decision to pursue a PPP is rarely first place,” says Michele Armanini (Greenfield Managing Director,
PPP projects. based purely on a lack of immediately available public finances to meet InfraCapital). Political issues are compounded at local government level,
7
as politicians are closer to the users, which can in part be combatted by “The best solution is unlikely to be produced where bidders feel they are evidence and demonstrate the community and mutual benefits of PPPs
“a well-formulated plan that sets clear expectations (for each of the in a lose/lose situation – they fear incurring wasted bid costs if they are and improve stakeholder involvement and transparency. With a more
government, users and private sector),” according to Michael Botha not successful and, therefore, the bid price submitted to hopefully secure comprehensive data set, both the public and private sectors will have a larger
(Managing Director, Infrastructure, Brookfield). It is this clarity of the project is too low to generate sustainable returns.” – Stéphane Duhr pool of empirical evidence to look to when reporting on the realized benefits
stakeholder involvement, and collaboration between local authorities (Director, Infrastructure, 3i). of PPPs (both economic and social value). Capturing and analyzing this data
(and central government) to realize efficiencies and share experience, will help illustrate the positives of PPPs that those in the industry have known
that is helpful in achieving the necessary partnership in delivering PPPs. This lose/lose situation can be avoided (for both the private and public for some time and highlight that the PPPs that truly fail are in the minority.
sector) through PPP evaluation criteria steering away from simply favoring Data should be clear, crisp and easily digestible by the end-users of the
Creating the right level of competition the lowest price bid. “PPPs are a spectrum of collaboration and risk across infrastructure asset.
Establishing strong competition for a project is not confined to the structuring the financing, construction and management phases,” observes Andreea
of an individual project’s procurement process, but rather starts long before Militaru (Analyst, IFC). Often, more sustainable solutions that achieve better Governments can find it challenging in a fast-evolving technological society
any negotiations with the development of a robust and supported (financially outcomes will come at a bottom-line cost, but ultimately represent good to predict infrastructure needs in 10-20 years’ time, and it is possible that
and politically) pipeline of projects, with clear milestones and commencement value for money (VfM). Supported by advisors in structuring and calibrating PPPs may not be best suited to the most complex assets which require
dates that do not stop and start. This allows the private sector to plan its the competitive procedure, it is an evaluator’s role to identify these trade- significant modifications on a frequent basis; shorter-term arrangements
investment and bidding strategy effectively and consider which opportunities offs so the most optimum solution prevails. However, there is a resounding (possibly redeveloping and/or repurposing assets which are approaching
it is best suited for (rather than present sub-optimal solutions for a large consensus in the market that there is a lack of tangible, quantitative data handback in the near future) may be more appropriate. However, good
number of projects to preserve its pipeline of business). This practice of illustrating the through-life value that PPPs deliver to support this VfM change mechanics (the results of which are well documented) and adopting
“pipeline preservation” was compounded by the 2008 global financial crisis, evaluation, particularly as there are limited comparable directly procured best practice in operating projects does allow an appropriate level of flexibility
as contractors wanted to retain workforce, knowledge and long-term income projects to act as appropriate comparators. Data is key and is severely lacking in contract and operational management, enabling procuring authorities
at any cost, so bidders became more aggressive and margins became lower in the PPP industry. to reap the benefits of a true partnership between the public and private
compared to the size of the risks that the private sector was assuming. sectors. As Nigel Middleton (Partner, UK / Infrastructure, 3i) concludes,
The role of data capture in demonstrating value for money “Instead of ‘inflexibility of PPPs’, you could read ‘detailed scrutiny of the
This is not to say that each project needs to have a high number of bidders There is a wealth of data points built into the PPP model; monthly payment genuine risks of making variations which the private sector is expected
to succeed. As Gijs Voskuyl (Partner, Head of Infrastructure, DIF) argues, and performance reports, condition surveys, lenders’ technical advisors to take on’. These risks exist in delivering and maintaining a variation
“authorities should be mindful not to encourage competition to be reports (and many more) all evidence the management and performance whether through a PPP or through conventional procurement. Arguably,
too high (on for instance price or acceptance of risk). Ultimately, any of an asset (whether over- or under-performing). It is vital, therefore, that the careful analysis of such risks should be a feature of planning a
model should also be beneficial for the private sector and too much any reporting and contract management systems are robust to ensure that variation no matter how procured….” Indeed, there is a strong argument
competition in PPPs has led to (significant) losses later in projects’ performance regimes are monitored correctly, while allowing changes to that having the continuity of a provider that is aware of integration issues can
lifecycle and, therefore, a decrease in perceived attractiveness by key be implemented more efficiently and issues to be rectified smoothly, all to make variations easier, more intuitive and quicker to implement. Increased
market participants, which is not helpful in the long term.” Instead, having optimize the asset and realize the maximum potential benefit to the taxpayer. communication across the industry could exponentially increase the sharing
experienced individuals managing the procurement processes to ensure of best practice evolution, adding a further layer of benefit.
those bidders that do participate are best in class (and do so on a sustainable One of the biggest challenges to the success of PPPs is public perception
basis) can result in better outcomes for taxpayers. and support, and it is becoming increasingly necessary to present tangible
8
The true benefits of PPPs are seen when all stakeholders bring their Yes, lessons must be learned from early iterations of the model; changes
respective strengths to the table to create an ecosystem – from the private and developments will be needed (and should be encouraged not feared) to
sector, as the custodians of these assets, these include: enable it to evolve to mirror and support the way high-quality infrastructure
evolves to suit its purpose and the society it serves. However, at its heart,
• contractors providing a competitive construction phase that produces an the concept of the private and public sector collaborating and combining
asset that has through-life maintenance integrated into its core systems; knowledge and expertise to maximize the benefits and minimize the risk
• equity investors offering a long-term view that is based on preserving the presented by complex construction and operation is surely an ambition that
asset to generate sustained, predictable returns; and everyone operating in the infrastructure industry should aspire to deliver and
• lenders bringing additional checks and balances with their more risk- commit to achieve in a sustainable way to support the needs of global society.
averse level of oversight and scrutiny.
These perspectives are not merely additional layers of complexity and

bureaucracy, but are intended to culminate in a project that has optimized
the risk transfer and harnessed the very best construction and long-term
asset management and lifecycle expertise to realize a through-life, value-for-
money asset for the public sector and taxpayer users. It is acknowledged that Maria Pereira
the private sector also shares in the success of an infrastructure asset, and Partner and London Head of Projects
the rates of return are often subject to media scrutiny, but “benchmarking T: +44 2071 537 113
provisions should help to assure clients that services are being provided M: +44 7968 558 737
at market costs,” says Michele Armanini (Greenfield Managing Director, maria.pereira@dlapiper.com
InfraCapital) and there is certainly some comfort that can be taken from the
fact that “ultimately a PPP is a financial cycle – the benefactors of equity
returns generated by an asset are often funds that rely on the stable low-
risk returns to safeguard the pensions of the users of the very asset that
generated them,” adds Darryl Murphy (Managing Director, Infrastructure,
Aviva Investors).
Owen Knight
There have been criticisms of PPPs mortgaging future generations, but with Associate
a well thought-out procurement pipeline, a considered risk-transfer matrix T: +44 2077 966 407
and properly structured, calibrated operational lifecycle model that passes M: +44 7802 719 380
ongoing management to the private sector experts on a strongly-competed, owen.knight@dlapiper.com
innovative basis, today’s PPP assets can deliver real value for tomorrow’s
society.
9
GLOBAL COMPARISON OF PPP BY COUNTRY CLOSED PPPs BY DEAL VALUE PIPELINE PPPs BY DEAL VALUE
40 200
Deal value (USDbn)
Deal value (USDbn)

We have selected eight countries with various levels of experience in PPP
35
financing: some are well-established, and some are new markets for PPP.
We have posed a series of questions to our projects and infrastructure 30 150
lawyers on the ground in these countries, in order to draw out the 25
similarities and differences around the PPP model in those markets
and to draw some conclusions. 20
100
15
10
50
5
0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(pipeline
estimate
2021
figures)
Source: Inframation
CLOSED PPPs BY DEAL COUNT PIPELINE PPPs BY DEAL COUNT

80 300
Deal count 70
Deal count
Australia 250
60
Canada
200
50
Colombia
Netherlands 40 150
Norway 30
100
Saudi Arabia 20
UK 50
10
USA
0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(pipeline
estimate
2021
figures)
Source: Inframation
10
Australia
Australia
11
Australia
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN Cost certainty
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME YOUR JURISDICTION? The government wants a high level of certainty regarding the total cost of the
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS project at the time it contractually commits to the project.
OF INVESTMENT. Privately financed projects have been taking place in Australia for a long
period of time. In modern times, the Sydney Harbour Tunnel, completed in Complexity and public interest
PPPs tend to represent less than 10% of total government infrastructure August 1992, was the first notable PPP project implemented in Australia. The The project is complex or unique, and therefore likely to benefit from the
procurement in Australia. The greatest use of PPPs is in New South Wales term “PPP” was only first introduced into the Australian market in 2000 when additional due diligence which private sector investors and financiers will
and Victoria, the two most populous states in Australia, at about a 10% the Victorian Government implemented its “Partnerships Victoria” policy. perform.
on average.
PPP PIPELINE BY STATE
Since January 1, 2017, there have been 12 PPP projects in Australia, all of WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR
which have been greenfield projects. The total value of these 12 projects JURISDICTION? VERY BRIEFLY, WHY IS THAT?
is USD22.55 billion, with each transaction averaging USD1.88 billion. The
Western Australia 1
highest valued PPP transaction was the Sydney Metro City & Southwest PPPs have generally been viewed favorably in Australia. Historically, state and
Victoria 44.35
project, valued at USD7.88 billion. federal governments are open to entering into PPP contracts where they
South Australia 4.6
consider it to be the best value for money procurement methodology.
Queensland 1.11
PPP projects have focused on investing in the social infrastructure and Northern Territory 0
transport sectors, specifically the development of new schools, rolling stock The prevailing view throughout Australia is that governments are more New South Wales 5.53
and rail projects, prisons, hospitals and aged care facilities. inclined to adopt a PPP contract with private companies where the projects ACT 1.3
display the following suitable characteristics:
State | Deals yet to reach FC by state (AUD bn)
PPP TRANSACTIONS AT FINANCIAL CLOSE 2020
Source: Inframation
Risk allocation
The project involves risks which the private sector is prepared to take at a
value for money price. The government also sees value in the “buffer” that BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR JURISDICTION,
the SPV’s equity investors and debt financiers provide against the risk of AND WHICH ARE MOST COMMONLY USED FOR (A) ECONOMIC
PPPs to reach financial close (AUD bn)
contractor insolvency or default for which the contractor’s liability is limited. INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE (THE “KEY MODELS”).
Social Infrastructure (3.05) PLEASE INCLUDE CONTRACTING STRUCTURES DIAGRAMS WHERE POSSIBLE.
Transport (5.11)
Stable requirement
The project involves the provision of infrastructure and services which are likely Australian PPP policies tend to limit the term “PPP” to transactions where private
Environment (0.58)
to be required, without substantial change, for the duration of the contract. finance is provided and the design, construction, operation and/or maintenance
services are bundled into a single contract.
Source: Inframation
12
Australia
The two main forms of privately financed PPPs used in Australia are: Ownership
“Australian PPP policies tend to limit the term
Where there is no transfer of ownership back to the government, but the
1. Service-payment PPPs – also referred to as a “social infrastructure PPP”, government retains a critical role, such as being a counterparty to a primary “PPP” to transactions where private finance
these PPPs consist of the private sector’s primary revenue stream taking the off-take agreement or regulatory role.
is provided and the design, construction,
form of a service payment from the government. For example, these projects
often include infrastructure such as schools, hospitals and prisons. operation and/or maintenance services are
EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS IN
bundled into a single contract.”
2. User-charge PPPs – also referred to as an “economic infrastructure THE KEY MODELS.
PPP”, these PPPs involve the private sector’s source of revenue being
generated from charges paid by users of the infrastructure, such as tolls Ordinarily in PPPs, all the risks that the SPV assumes under the contracts with NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL AUTHORITIES OF
paid by the users of a toll road. government in relation to the design, construction, operation and maintenance ADOPTING THE KEY MODELS. ARE COMMUNITY BENEFITS FACTORED IN?
of the infrastructure asset will be passed through to the SPV’s D&C and/or O&M
The reality, however, is that a broad range of PPP models are used in subcontractor. Typically, the only risks that remain within the SPV, and to which 1. Better value for money – for suitable projects, a PPP can deliver superior value
Australia, including: its equity investors are therefore exposed, on service-payment PPPs are: for money for government than any alternative delivery model. This outcome
can be achieved in various ways but is usually from a combination of a better
Operating franchise • the risk of a subcontractor to the SPV not being legally liable to the SPV for infrastructure solution and better outcomes, less risk for government, and/or
Where there is performance-based remuneration, the transferring of O&M risks a breach of its obligations, because of a cap on or exclusion to its liability; a lower cost for government, when assessed over the period the infrastructure
and government retention of ownership and revenue risks. • the risk of a subcontractor to the SPV becoming insolvent; asset is used.
• the risk of the SPV not being able to refinance its debt on terms consistent
DBM contracts with those assumed in the financial model; 2. Superior cost, time and service outcomes – comprehensive studies undertaken
Involving new or refurbished infrastructure, government funding of capital • the risk of an upstream change of control occurring in respect of an equity in Australia in recent years have shown that PPPs experienced average
costs, performance-based O&M fees, transfer of DBM risks and government investor in breach of the PPP contract; construction cost overruns of 4.3%, compared with 18% for traditionally
retention of ownership and revenue risks. • the risk of the SPV being liable to a subcontractor (or a third party) for an procured projects. The average construction phase delay for the PPPs was
amount in excess of what the SPV can recover from the government – for 1.4%, compared to 25.9% for traditionally procured projects. Further, 95% of
Privately financed DBM contracts example, because the SPV has independently done something wrongful service providers, such as school principals, doctors, wardens and contract
DBM contracts with private financing. toward a subcontractor (e.g. incorrectly rejected its design documentation) management staff using the PPP assets to deliver a service to the community,
for reasons unrelated to a corresponding wrongful act of the government; stated that the PPP projects have delivered on the service delivery outcomes
Long-term lease • the risk of the SPV being liable to the government (or a third party) for an promised by the government.
Involving existing infrastructure or privately financed new infrastructure, amount in excess of what the SPV can recover from its contractors; and
transfer of commercial risks and government retention of regulatory oversight. • the risk of a “gap” arising in the pass-through of rights or obligations via its 3. Greater budgetary certainty – PPPs can provide a higher level of budgetary
subcontracts. certainty than more traditional contracting models for the entire project
at the time government enters into the first major contract for the project.
For a user-charge PPP, demand or revenue risk can also be added to this list. Alternative contract delivery models often involve government separately
13
Australia
contracting different parts of the project, such as O&M, progressively. an opportunity to think laterally and identify opportunities to provide
“The use of private finance adds additional
However, circumstances and project scopes often change between the the required services in new ways that improve outcomes and/or reduce
time government enters into the first major contract for a project, and costs. A key to greater innovation is to give thought to framing the project costs that do not arise under a public‑funded
its last one, leading to higher final costs than anticipated. PPPs avoid this objectives in such a way that bidders may come up with a variety of
contract delivery model, as the SPV will need
situation by requiring all necessary contracts to design, build, operate different means to achieve the desired objectives. A contracting model that
and maintain the project to be signed before the government becomes bundles operation and maintenance into the contract, such as a PPP, can to pay interest on the debt finance, and will
bound by the PPP contract, thereby providing the government with more help drive operator-led innovations.
be expected to provide an equity return to its
budgetary certainty at the time it contractually commits to the project.
6. Source of funding, if user-charge – PPPs can expand the funding available equity investors.”
4. Improved project scoping and risk assessment by government – the long- for public infrastructure, but this is only true in the case of user-charge
term nature of the PPP contract makes the procuring government agency PPPs. Service-payment PPPs simply substitute government borrowings • the service payment; or
think carefully about the service outcomes that the project should achieve. for a different liability – a commitment to pay a service payment to the • the user charges.
Consequently, the tender documents for PPP projects tend to be more SPV. However, where there is a significant contribution to the funding of a
output-focused – they specify the services that the government agency project from its user charges, a PPP does expend the funding available to Accordingly, the SPV’s financing costs will be passed through to:
wants delivered, rather than the means by which those services are to government.
be delivered. The end result is that the procuring agency’s objectives, • government (taxpayers), via larger service payments; or
requirements and specifications for the project are better developed 7. Risk Transfer – a key benefit of PPPs is that they achieve significant risk • users, via higher user charges (or a longer concession period).
at the time when tenders are called. This results in fewer government- transfer from the government to the private sector. Australian PPPs seek
initiated contract variations after the contract is awarded. The level of risk to allocate risks to the parties best able to manage them. Optimal risk PPPs are regularly criticized on the basis that governments can borrow
assessment by government agencies prior to contract award is much allocation is the goal, where risks are allocated in a manner that minimizes finance more cheaply than the private sector. In order to access the cheaper
greater on PPPs for the same reasons. The risk analysis that underpins the aggregate cost of managing the risks over the term of the contract. finance, however, governments need to borrow on a “full recourse basis”,
the agency’s cost estimate tends to far exceed the risk analysis performed Only those risks that the private sector can manage at a lower cost than and agree to repay the loan regardless of whether or not the net revenues
by government agencies for cost estimates for traditional procurements. the government should be allocated to the private sector. generated by the project are sufficient to repay the loan. Accordingly, the
This additional analysis makes the government agency a more informed government ends up bearing the risk of poor project performance.
purchaser, and better able to interrogate the pricing and risk assumptions
of bidders. WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS? In contrast, when a SPV borrows debt for a project, it does so on a “limited
recourse” basis (i.e. on the basis the debt financiers can only have recourse to
5. Innovation and focus on outcomes – the output/performance focus of Using private finance adds additional/higher costs the assets of the SPV (i.e. the project’s assets and revenues), and cannot have
government specifications for most PPPs provides greater scope for the The use of private finance adds additional costs that typically do not arise recourse to the SPV’s equity investors, or to government).
private sector to bid innovative solutions which can deliver the required under a public‑funded contract delivery model, as the SPV will need to pay
services at a lower whole-of-life cost. As government is more concerned interest on the debt finance (which is almost certainly at higher rates than the Accordingly, the lenders end up sharing the risk of the poor project
about service levels and outcomes over the applicable period of time government can borrow), and will also be expected to provide an equity return performance meaning they will charge a higher interest rate when lending to
rather than the form of physical assets used to deliver them, bidders have to its equity investors. The SPV will need to recover the cost of this capital via: SPVs, on account of the higher credit risk.
14
Australia
Failed (insolvent) PPPs Furthermore, PPP contracts involve long‑term commitments, often 30 years
Most of the so‑called failed PPPs in Australia have been user‑charge PPPs, plus, and exiting a PPP contract early can be expensive, as counterparties will
where the revenue generated by the project was well below that forecast (depending on the termination circumstances) be entitled to be compensated
ANY OTHER RELEVANT POINTS TO NOTE.
by the consortium’s investors, leading to the insolvency of the SPV. Very few for the return they would have derived from the contract. This lack of flexibility
service‑payment PPPs in Australia have resulted in an insolvent SPV. is especially problematic when a PPP asset forms part of a broader network.
New risk sharing models are being explored in Australia. More information
Government can find that the PPP contract not only impairs its ability to make
can be found in:
Notably, it has generally been the equity investors only that suffer loss when changes to the PPP asset, but it also impairs government’s ability to make
the SPV becomes insolvent. Sometimes the debt financiers have also suffered changes to the broader network. In these situations, government may be
• New risk sharing models for privately finance projects
a loss. Governments and other participants in failed (insolvent) PPPs have better served by a more traditional contracting model that might more easily
• Improving public private partnerships
generally received what they bargained for. accommodate future changes.
A downside for the government of these failed PPP projects has been the
loss of appetite by equity investors and debt financiers for demand risk on HOW FLEXIBLE ARE THE KEY MODELS?
greenfield projects, forcing government to use contractual delivery models
under which government bears more demand risk. Flexibility in a PPP contract is essentially the government or any party’s
ability to change the terms of the PPP contract once the project is underway.
Insufficient flexibility Privately financed PPP models have historically proven to be less flexible than
PPPs are not a two-party contract that can be varied by agreement between publicly funded delivery models. José de Ponte
the government and its contractor. Rather, in the most basic of PPP structures, Partner
there are at least four separate private sector groups (i.e. equity investors, As mentioned above, the primary reason privately financed PPPs lack flexibility T: +61 292 868 120
debt financiers, the D&C contractor and O&M contractor) each with different is because of the number of parties with an interest in the contract. The most M: +61 478 877 890
commercial interests in the project. Generally, before the SPV can agree basic forms of PPP contracts will still involve at least four private sector groups jose.deponte@dlapiper.com
to a change to the PPP contract with the government, it must obtain the – equity investors, debt financiers, D&C contractor and O&M contractor –
agreement of the other private sector groups, which can prove challenging each with different commercial interests. Each private sector party has only
where the interests of private sector parties are adversely affected and agreed to the PPP contract based on the contractual arrangement at the
obligations on private sector parties are increased. time they signed the contract. When government or the SPV seek to change
any provisions in the PPP contract, all private sector parties have to agree to
these revised terms. Achieving flexibility then becomes challenging when each
private sector group’s commercial interests could be adversely affected as a
result of changes to the PPP contract.
More information on this issue can be found in DLA Piper’s,

“Flexing PPPs” report.
15
Canada
Canada
16
Canada
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN AT FINANCIAL CLOSE SINCE 2010
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME YOUR JURISDICTION?
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS Alberta 10
OF INVESTMENT. While the late 1990s is sometimes identified as the point in time in which PPPs British Columbia 25
first appeared in Canada, it was not until the early 2000s that Canada’s PPP Other * 9
Canada has continued to enjoy a robust PPP market with projects in virtually market commenced in earnest. New Brunswick 4
all major sectors. These projects span the full spectrum of the PPP model, Newfoundland & Labrador 4
Ontario 84
from DBFM, DBFO, DBFOM and DBF to Build-Finance. Two pilot DBFM projects were procured starting in around 2002 in the
Quebec 16
acute healthcare sector, the William Osler Health System and a large acute
Saskatchewan 9
There are approximately 111 PPP projects across all sectors and regions care facility in Ottawa, the nation’s capital. These projects largely used UK
which are currently either in the planning or procurement phase or under documentation, adapting it to meet specific Canadian federal and provincial
construction. Estimated project values have been made publicly available requirements. As those projects reached financial close in 2004, other Province | Deal count
for only 65 out of the 111 projects. Those 65 projects have an aggregate provinces started to use the PPP model, notably British Columbia.
estimated project value of CAD55.1 billion, but the total value of all 111
* Manitoba, Northwest Territories, Nova Scotia, Nunavut
projects is far greater. The balance of Canada’s PPP projects are spread across Projects were procured in both the transport and healthcare sectors,
Source: Inframation
energy, technology, government building, justice, education and other social with projects such as the Canada Line, Sea to Sky Highway, Kicking Horse
infrastructure projects, with justice and education projects being the most Canyon, Okanagan Lake Bridge and Golden Ears Bridge. In Ontario and
significant. Transportation (predominantly light rail, subway and transit, but British Columbia, market documentation and procurement models began
also including highways, bridges and tunnel projects), health, and water and to consolidate into standard form with the evolution of two agencies,
wastewater projects have, in that order, ranked highest in Canada by volume Infrastructure Ontario in Ontario and Partnerships BC in British Columbia
and estimated project value. and the expertise created within these agencies assisted significantly in the
development of contractual and financing structures readily accepted by the
private sector and both domestic and international lending institutions.
The Province of Alberta then joined the market and rapidly added a series
of ring road and bundled school projects to the mix. Since then, the federal
government and numerous other provinces and territories, including
Manitoba, Saskatchewan, Nunavut, Quebec, Newfoundland and Labrador,
Nova Scotia, and New Brunswick, have all undertaken PPP projects, adopting
and adapting the structures developed by the prime mover provinces.
17
Canada
WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR

PPP PIPELINE
JURISDICTION? VERY BRIEFLY, WHY IS THAT?
The use of PPPs in infrastructure projects is generally viewed very favorably

in Canada. The PPP model has been used to successfully deliver dozens of Delivery Method (Deal count)
high-value, high-profile social, transportation, water and wastewater and

DBF (13)
energy projects in Canada and generally there has been a good track record
DBFM (8)
of delivering the relevant projects on time and on budget. Although there have
DBFOM (10)
been concerns raised regarding the increased cost of relying on private-sector
capital, the outsourcing of jobs to non-unionized work forces and the potential N/A, BF (14)
for private-sector “windfalls” at the expense of taxpayers, on the whole the

model has garnered and continues to receive support from governments of Source: Inframation
various political stripes across Canada and from the general public.
One of the aspects of Canadian PPPs which supports their popularity is that
they are based, for the most part, on availability payments rather than revenue-
based payment mechanisms that require the market and its lenders to assume
volume risk. As such, end users do not have to pay for their individual use of
the infrastructure, which aligns more closely with how Canadians think about
government-sponsored infrastructure projects as constituting public goods.
As well, transferring the design, construction and materials procurement risk
to the private sector, while the public sector focuses on output specifications
and major permitting risks, allows for each side to do what they do best, thus
increasing the overall efficiency of the process. Finally, as the PPP model has
evolved in Canada, government infrastructure procurement agencies have
refined their agreements and risk transfer mechanisms and have encouraged
the entry of more participants into the bidding process in order to ensure
that there is more opportunity for the public-sector to participate in potential
upsides and to drive leaner, more competitive bids from private-sector
participants.
18
Canada
BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR limited number of large milestone payments during the construction period
“The use of PPPs in infrastructure projects is
JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (sometimes a single bullet payment on substantial completion) or through
(A) ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE a value achieved mechanism, where the lenders’ technical advisor or other generally viewed very favorably in Canada.”
(THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES payment certifier will allow funds to flow from the public authority on value
DIAGRAMS WHERE POSSIBLE. achieved against a series of milestone events or sub-tasks under specific
credit rules applicable to the project. Similar short-term financing mechanisms
The most common model for social infrastructure PPP projects in Canada are used for DBF projects where long-term finance is required.
remains DBFM, although some highway and recent light rail projects have
used the DBFOM model. Increasingly, we are seeing a number of DBF
projects, where the asset will be subsequently operated and maintained by
the public sector. As noted in the response to the previous question, most DBF[O]M STRUCTURE DBF STRUCTURE
PPPs in Canada have been developed on the basis of availability payments
or equivalent and, accordingly, there are insufficient economic infrastructure DB Contractor DB Contractor
Equity Investors
projects to provide any statistically relevant guidance. parent parent
Design-
Design- Build
Financing for infrastructure projects in Canada follows a number of models. Build Parent
Parent guarantee
For DBFM or DBFOM projects, financing usually takes the form of a hybrid guarantee
Direct Direct
bank/bond or occasionally short-term bond/long-term bond financing. Until Design-Build
Agreement Design-Build
Agreement
Contract Contract
the global financial crisis, European commercial bank lenders were willing to Design-Build- Design-Build-
lend on a long-term basis to Canadian projects, but now the principal sources Entity Entity
of long-term debt are bonds or notes, either broadly marketed issuances

[Short and] Long [Short and] Long
Construction Construction
under a Confidential Offering Memorandum or unrated private issuances, but [Operational &]
Credit Term Lender Credit Term Lender
Maintenance Project Co Project Co
Facility Facility
with the ultimate investors in either case usually being financial institutions Contract
looking for steady, long-term returns to match their own investor profile, often [Operating and]
maintenance
Lifecos or similar. For the short-term finance component, this can be provided Entity Lenders Lenders
either through commercial bank debt, with the “Big Six” Canadian banks Remedies Remedies
Project Project
[O&]M Agreement Agreement Agreement Agreement
very active in this market along with Japanese and some European lenders. Parent
guarantee
The short-term debt can be repaid in one of two ways – either through a
[O&] Contractor
Authority Authority
Parent
19
Canada
EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS IN and international contractors active in the Canadian market now have WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?
THE KEY MODELS. development arms. In these cases, equity may be willing to take on additional
risks, such as meeting certain financing costs during no-fault delays, where Public sector risk allocation - currently one of the key challenges to the PPP
The risks for equity investors in both a DBFM and DBFOM project are this might present a more cost-efficient solution. model, generally in Canada, is the perception among contractors that the
substantially the same. Generally, equity investors are reluctant to take on risk allocation in large-scale complex transit projects has moved too far in
risks that they cannot manage, and they therefore subcontract the substantive Generally, there is no equity on Canadian DBF projects. favor of the public sector. For example, there have been a number of high-
risks of design and construction, and operations and maintenance. The profile project delays and disputes, primarily stemming from a failure to allow
remaining risks taken by equity include: adequately in the relief regime for delays caused by issues with permits/
NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL consents, geotechnical conditions and failures of utility entities to carry out
• financing – equity is responsible for obtaining the financing, managing the AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY activities under their areas of responsibility in a timely fashion, leading to
relationship with lenders, obtaining necessary consents during the life of BENEFITS FACTORED IN? overall delays. In addition, some longstanding concerns about a lack of clarity
the project, etc.; in risk allocation provisions in PPP project agreements, which private sector
• managing the relationship with the public sector owner; The main benefits associated with the social infrastructure “Key Model” are: participants and their advisors have long requested infrastructure agencies
• insolvency – if one of the main contractors becomes insolvent, equity to clarify, have crystallized into real disputes. This has all occurred on top of
is responsible for finding a replacement contractor and obtaining the • leveraging private sector efficiencies and innovation; a recent high-profile insolvency of a UK entity that had multiple Canadian
necessary consents to their involvement; • delivering projects on time and on budget; projects which required co-investors to respond, which they broadly did.
• equity’s own acts and omissions; • ensuring a holistic approach is taken to design and construction of the Disputes stemming from the COVID-19 pandemic have added to the general
• equity’s own costs and loss of equity return for certain no-fault events relevant facility, so that a whole life design approach is adopted; perception that the lack of adequate risk contingencies forced out of projects
where the project agreement provides relief, but no compensation; and • where there is a long-term maintenance element, ensuring both regular by competitive tension between bidders and an ever-increasing emphasis
• losses in excess of any capped liability from the primary contractors. maintenance and long-term lifecycle work is undertaken; of pricing over other evaluation factors have caused a withdrawal from the
• transferring risks to the private sector to increase value for money; and market of a number of contractor participants who no longer wish to bid on
Increasingly in Canada, the market has moved from one where “pure” equity • doing all the above under a model which allows maximum gearing to fixed price construction contracts.
investors predominated to a market where the contractors (both construction reduce the amount of equity required to be invested in the project and
contractors and O&M providers) take equity positions in the SPV, such that thereby reduce the overall cost of the project to the public purse. Inflexibility - linear PPPs, especially transit PPPs, are constrained by restrictions
there is identity of ultimate ownership between equity and one or more of the imposed by lenders, preventing necessary variations or the ability to extend or
key contractors. Originally, this was perceived as a mechanism to have a “seat Community benefits are often included as key contractual commitments of the interconnect with other projects without costly and complex negotiations. This
at the table” in relation to risk allocation issues, but in a number of instances, private sector in the project documents. In particular, these regularly include is leading to the development of new forms of collaborative or alliance-based
the involvement of contractors has now led to those entities developing apprenticeship programs and work and training opportunities to Indigenous contracting with greater emphasis on risk sharing between all the participants
capital vehicles that look to secure some of the upside ownership benefits of communities. Recently, British Columbia has introduced a Community Benefits in the process. Both Ontario and British Columbia have developed or are in
equity investment in the relevant projects. A significant number of Canadian Agreement into certain projects, which includes a focus on using labor from the course of developing project documentation for collaborative or alliance
under-represented groups. based contracting and it is likely that this trend will continue.
20
Canada
HOW FLEXIBLE ARE THE KEY MODELS?

“At the current time, one of the key challenges to the PPP model
As noted above, the social infrastructure Key Model prevails in Canada to the
generally in Canada is the perception among contractors that the risk
exclusion of economic infrastructure and there is little sign of this approach
changing. There is little appetite for “user pays” infrastructure and, in all allocation in large-scale complex transit projects has moved too far in
likelihood, there will be even less appetite in a post-COVID-19 environment,
favor of the public sector.”
where the market will react with concern to suggestions that volume or
ridership risk should rest with the public sector. Furthermore, it appears likely
that even availability models may come under scrutiny where the original
projects were structured on the basis of the assumption that ridership would
increase and therefore that the private sector could look forward to increasing
service levels and demand for services, whereas, at least in the short term, it
looks as though service levels will likely remain static for some considerable
time until passenger demand begins to increase towards regaining pre-
pandemic levels.
Nonetheless, the success of the Canadian model over the last 18 years or so
and the ability of the contractual PPP model to incentivize particular behaviors
and public sector objectives through specific performance regimes and
payment mechanisms provide strong evidence that the model will continue
to be one of the preferred approaches of the public sector to encourage
private sector participation in the delivery of public facilities and services.
Ian Bendell
Foreign Legal Consultant and Co-Chair of Canadian Projects,
Energy and Infrastructure
T: +1 416 369 5252
ian.bendell@dlapiper.com
21
Colombia
Colombia
22
Colombia
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION GREENFIELD PPP PROCUREMENT* 2018 – 2020 It is important to note that outside of the PPP Law, large infrastructure
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME projects were structured using other, historic models that allowed private
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS participation in infrastructure. For example, Colombia’s largest infrastructure
OF INVESTMENT. investment, the first line of Bogotá’s metro system, worth USD3.4 billion that
is about to start its construction phase, has been structured using the public
Value (USD bn)
Colombia’s PPP market has been dominated by the development of work concession model, as well as the 1G, 2G and 3G road concessions and
transportation PPPs (through the historic 4G and recently launched 5G 2018 (3.13) the current concession of El Dorado Airport in Bogotá.
programmes), which have been identified by the government as the preferred 2019 (2.74)
means to increase the competitiveness of the country; specifically, investment 2020 (0.89)
has focused on the road, airport and rail sectors. However, social PPPs are WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR
now starting to be awarded, for example the first hospital PPP, the USD302 JURISDICTION? VERY BRIEFLY, WHY IS THAT?
million Bosa Hospital, was awarded toward the end of 2019 and is expected to *Data based on the transport sector only.
be operational by 2023. Source: Inframation PPPs are generally viewed favorably, as they are a sophisticated contractual
mechanism which has introduced the project finance model and helped
Colombia’s 4G concession road program proposed 52 projects of which 29 standardize contractual documentation, which in turn has brought on
were finally awarded and are ongoing, representing an investment of USD25 WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN legal stability and investor confidence, thus creating new opportunities
billion. The government recently launched three procurement processes for YOUR JURISDICTION? for participation of international financial institutions in infrastructure
the first wave of the 5G infrastructure program. The first stage (expected to investments.
be awarded within the term of the current government, which ends in 2022) PPPs were introduced by Law 1508 of 2012 (the PPP Law), which significantly
includes 12 PPP projects (six road, three airport, one rail and two waterway expands the types of infrastructure projects which may receive private Also, the introduction of availability payments has mitigated risks of delays
projects) valued at approximately USD4.71 billion. The second stage is investment, as the previous legal framework limited private investment to only caused by poor planning and wrongful investment of advance payments to
currently being structured, but is anticipated to include 11 PPP projects valued certain public works projects. The first significant implementation of the PPP construction companies, which has improved spending and public perception
at approximately USD7.92 billion including 10 roads and the expansion of figure was the 4G concession road programme, which started implementation of project development.
Bogotá’s airport system. with the first project awards in 2013-2014 and finished in 2018. This has been
built on by the recently launched 5G program. Another important measure implemented by the government that favors
PPPs was the enactment of Law 1882 in 2018 (particularly article 20), which
This new program is composed of projects which seek to be more sustainable contains a disposition explicitly recognizing outstanding payment obligations
on four different levels: institutional (by applying better standards of to third parties acting in good faith in circumstances where a contract is
governance and collaboration amongst public bodies); environmental (by declared null and void, in which case the termination payment formulas of
including projects which are resilient to climate change); socio-economic (by the contract don’t apply. Such disposition was declared constitutional by the
promoting better engagement of the communities surrounding the projects); Constitutional Court of Colombia, on the basis that the investment made
and financial (by seeking a better allocation of risks and adequate conditions by third parties of a contract such as lenders must be protected, except for
for the retribution of the concessionaire with less usage of public funding). “break-up” fees.
23
Colombia
BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR Public initiative PPPs are those projects which are structured and launched
However, questions regarding the limitations of the model when structuring
JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A) by public entities. These projects do not face a limit in percentage of public
social PPP projects have arisen, such as the division of projects into functional
ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE investment, have to be procured following a public tender process through
units which seem to work best for roads or the limitation in the use of public
(THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES which a private developer is selected by the contracting entity, and, in order to
funds in unsolicited PPPs for projects which don’t generate enough revenue
DIAGRAMS WHERE POSSIBLE.1 launch the procurement process, the public entity must have the studies that
on their own.
support the project; the value for money evaluation, the reasons that justify
There are several figures which allow private participation in infrastructure contracting the project via a PPP model and the risk assessment.
PPP PIPELINE which have been present in Colombia since the early 1990s, such as the public
work concession figure defined in Article 32.4 of Law 80 of 1993, (the general Unsolicited PPPs are those projects which are structured by a private
Cali Attorney General’s Office Building 0.14 public procurement Law); port concessions, which are defined by Article 5.2 of developer at their own risk and presented to a public entity for their
Accesos Cali-Palmira Road Network 0.3 Law 01 of 1991, and the supply of public utilities by private parties established evaluation and eventual development, following pre-feasibility and feasibility
Canal del Dique Waterway PPP 0.5 by Law 142 of 1994, among others. phases during the structuring of the project. In the pre-feasibility phase the
Montería-Sincelejo Highway 0.3 private developer describes the project with general information including
Magdalena River Navigability PPP 0.17
PPPs, as defined by the PPP law, are “an instrument of engagement of private initial designs demand studies, estimated cost and resources. In the feasibility
Troncal del Magdalena 1.1
capital, materialized in a contract between a public entity and a legal private phase, the private developer goes into detail describing the financial model,
Loboguerrero-Buenaventura Highway 0.29
0.42
law person, for the provision of public assets and their associated services, the project, its phases, duration and risk assessment among other details.
Buga-Loboguerrero Highway
Bogota Northern Access II 0.38 which involves the retention and transfer of risks between the parties and
West Longitudinal Avenue 0.2 payment mechanisms related to the availability and service levels of the These projects face limits in the percentage of public funds they may use, at
applicable infrastructure and/or service.” 30% for all projects except roads, which may only use 20% of public funding
Project | Capex (USD bn) with respect to total contract value. Additionally, if they don’t involve public
Source: Inframation Their maximum duration is 30 years, unless otherwise approved by the funding, they are procured using an expedited procurement procedure.
National Economic and Social Policy Council (CONPES).
Both for economic infrastructure and social infrastructure, the most widely
PPP projects, where possible, are subdivided into “functional units”, which are used Key Model is the public initiative PPP; however, many economic PPP
defined by Decree 1082 of 2015 as engineering structures that may provide projects have been structured as unsolicited PPPs. It must be noted that
services with functional independence from the rest of the project (Functional using the unsolicited PPP Key Model when structuring a social PPP may prove
Units). The availability payment to the concessionaire of the PPP project is difficult, as social PPPs tend to be less financially sustainable than economic
calculated based on the participation amount of each of the Functional Units PPPs. As such, the 30% limit on public funds leaves little possibility for those
of the Project in the total revenue with the Functional Unit’s compliance with projects which don’t generate enough revenue on their own and require
performance standards. public funds to cover project costs, debt service and the concessionaire’s
remuneration.
1
Apartes de la respuesta basados en Inter-American Development Bank, Fundamental Principles in PPP
Laws in Latin America, https://publications.iadb.org/publications/english/document/Fundamental_
Principles_in_PPP_Laws_A_review_of_Latin_America_and_The_Caribbean.pdf, artículo en línea, consultado
el 13.10.2020
24
Colombia
The basic contractual scheme of a PPP under Colombian law is the following: EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS IN However, risk allocation may vary in certain projects regarding their features,
THE KEY MODELS. as CONPES documents don’t exist for every project mode.
Direct Agreement
Lenders Contracting Entity Risk allocation A widely used example of allocation of risks in PPPs is CONPES document
Article 4 of Law 1150 of 2007 states that public entities should identify, 3760 of 2013 (modified by documents 3800 and 3807 of 2014), which
Bonds, loans Debt Service
estimate and assign foreseeable risks contained in proposed contracts. A establishes the main risk allocation guidelines for 4G projects, including the
Concession
Agreement
Government
Payments*
contractual risk is generally understood as any circumstances that may arise following rules:
during the development of a contract and can alter its financial balance.
Land acquisition risks:
Dividends Service Contracts
Sponsors and Project Company Contractors / CONPES has established various guideline documents for risk allocation in (a) any cost overruns up to 120% of the expected cost will be borne by the
Shareholders (SPV) (EPC, O&M)
Equity Investment Service Payments infrastructure contracts which involve private participation, including CONPES Concessionaire;
documents 3107 and 3133 of 2001, 3714 of 2011, 3760 of 2013 (as modified (b) any cost overruns from 120% but not exceeding 200% of the expected
User Fees Services

by CONPES documents 3800 and 3807 of 2014), and 3961 of 2019. In general, cost will be distributed in a 70/30% ratio between the contracting entity
CONPES documents allocate risks to the party which is better poised to (in this case, the Agencia Nacional de Infraestructura, ANI) (70%) and the
assume and manage a risk.2 A general risk matrix as established by CONPES concessionaire (30%);
guidelines can be the following: (c) any cost overruns exceeding 200% will be borne by ANI.
Users
RISK PRIVATE PUBLIC Regulatory risks:

* Up to 30% of the Contract Value for Unsolicited PPPs ANI only assumes regulatory risk when, as a consequence of a regulatory
Operational change, the concessionaire’s profits are affected beyond a deviation
parameter as stipulated in the contract.
Economic
Environmental risks:
Financing
(a) any cost overruns up to 120% of the expected cost will be borne by the
Concessionaire;
Nature
(b) any cost overruns from 120% but not exceeding 200% of the expected
Environmental cost will be distributed in a 70/30% ratio between ANI (70%) and the
concessionaire (30%);
Socio-Political (c) any cost overruns exceeding 200% will be borne by ANI.
Technology
2
Ver “The Projects and Construction Review – Colombia”, https://thelawreviews.co.uk/edition/the-projects-
and-construction-review-edition-10/1228793/colombia artículo en línea, consultado el 13.10.2020
25
Colombia
A specific CONPES document establishing guidelines for 5G projects has not Early termination payments – Recognition of investment
yet been published. In accordance with Article 32 of the PPP Law (as modified by Law 1882 of
2018), PPP contracts must include a compensation formula pursuant to
Limitation of liability and force majeure which the contracting entity is required to compensate the concessionaire
Parties to a transaction are free to agree on its terms and conditions including for the then present value of all capital investments made in the Project plus
limitations to liability. However, certain public law rules stipulate that liability operational and maintenance expenses incurred with respect to the Project
cannot be limited in public contracts in cases of gross negligence or willful up to the termination date, net of (i) any Project Revenues already received by
misconduct, or in a way which may allow one party to breach its obligations the Concessionaire prior to the termination date and (ii) penalties imposed
under a certain contract. and not paid. Even if the PPP contract is declared null and void by a judicial
or administrative decision, a compensation calculation must be carried out
Additionally, in PPP contracts, as in all contracts under Colombian law, a to recognize outstanding payments between the parties taking into account
party will be excused from performing its obligations under force majeure certain special conditions.
events (according to Article 64 of the Colombian Civil Code, events which are
unforeseeable and irresistible to one or both of the parties).
NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL
In PPP contracts, certain special force majeure events (called Liability AUTHORITIES OF ADOPTING THE KEY MODELS.3 ARE COMMUNITY
Exoneration Events or LEEs) are agreed upon by the parties in accordance BENEFITS FACTORED IN?
to the specificities of each project. For example, projects which require land
acquisition include LEEs when land acquisition proceedings take longer than • The ability to develop more projects using fewer public funds.
legally stipulated for judicial or administrative expropriation decisions, projects • Transfer of knowledge and technology from the private sector.
which require interference with pre-existing public utility networks include • Projects are less prone to delays and cost overruns.
LEEs related to the unavailability to negotiate the intervention of the network • More value for money due to adequate risk transfer.
with the owner, and environmental LEEs related to environmental authorities • PPPs diversify the economy as they make the country more competitive.
taking longer than legally stipulated for issuing an environmental license or • PPPs complement the limited capacity of public entities to administer
permit are also included. infrastructure assets by handing design, construction, operation and
maintenance to private parties.
Political risks • New PPP projects, especially 5G projects, are thought to be more
The Colombian Constitution stipulates that there will be no expropriation sustainable, and thus engage surrounding communities to bring greater
without indemnification. benefits.
3
Ver World Bank Group, “Objetivos del Gobierno: Beneficios y Riesgos de las Asociaciones Público
Privadas” https://ppp.worldbank.org/public-private-partnership/es/asociaciones-publico-privadas/
beneficios-riesgos, artículo en línea, consultado el 13.10.2020
26
Colombia
WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?
• Higher costs of structuring, procuring and development.

• Higher cost of financing.
• Risk management regarding social, environmental risks.
Colombia has been ranked by The Economist’s Intelligence Unit 2019
• Difficulty in identifying all possible contingencies and problems which
Infrascope Report as the country with the best legal framework in Latin
may arise during the development and operation of the project, due to
America to develop PPPs, and No. 2 overall for PPP development, only
the long term of PPP contracts.
behind Chile and tied with Peru.4
• Public funding limits to unsolicited PPPs make them difficult to use
for social infrastructure projects.
• Difficulty in applying PPP model in second-level entities, knowledge
and technology transfer is very limited.
Although leaning towards transportation, and especially road project

PPPs, the Key Models are being used on other modes of transportation Paola Aldana
infrastructure, as well as on social infrastructure projects. Some developments Partner
such as the introduction of a new definition of Functional Unit, designed T: +57 1 317 4720
to give the Key Models more flexibility have been introduced by legislation, paldana@dlapipermb.com
but have not yet been regulated.
4
De acuerdo con https://infrascope.eiu.com/wp-content/uploads/2019/04/EIU_2019-IDB-Infrascope-
Report_FINAL-1.pdf, documento en línea, consultado el 13.10.2020
27
The Netherlands
The Netherlands
28
The Netherlands
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION An overview of local and regional PPP projects by several government entities Around 2014, DBFM(O) was fully institutionalized in large central government
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME and PPP projects initiated by the central government can be found on the projects, but decentralized government authorities still made very little
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS website of PPP Network the Netherlands. use of PPP, partly because of lack of knowledge and fear of complex and
OF INVESTMENT.5 costly tender procedures. A roadmap “DBFM for decentralized government
https://www.ppsnetwerk.nl/onderzoeksprojecten/ authorities” was then introduced.10 Since then, PPP projects have been
The vast majority of PPP projects in the Netherlands, including private initiated more and more in several sectors.
financing (DBFM(O)), is tendered by the central government. A distinction
is made between infrastructural PPP projects (motor highways, floodgates, WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN
tunnels, etc.) and accommodation PPP projects (court buildings, hospitals, YOUR JURISDICTION?
prison complexes, central government offices, museums, etc.). Furthermore,
decentralized authorities, such as provinces and municipalities, manage PPP The possibility of private financing of infrastructural projects was first
projects related to social, healthcare or public institutions accommodation. considered around 1990. However, in the next decade hardly any projects
were realized with private finance. In 1998, the central government
Infrastructural PPP projects represent a majority of the investment recently announced to give a new impetus to investment projects based on PPP6
seen in the Netherlands, and have included 2 highways, 1 motorway, 1 tunnel and in 1999 the DBFM(O) model was introduced.7 Since 2005, the central
and 1 dam with a total investment of approximately EUR4.79 billion. government has executed a “public private comparator” for projects with
an estimated value above EUR25 million (housing) and EUR112.5 million
An overview of local and regional PPP projects by several government entities (infrastructure) to decide whether or not to structure a project as a PPP.
and PPP projects initiated by the central government can be found on the
website of PPP Network the Netherlands. Please note, in Dutch the acronym Around 2004, the use of PPP was still incidental and not structural.8 By
PPP is referred to as PPS or Publiek-Private Samenwerking. 2007/2008, a structural development of DBFM(O) contracts was in place,
especially with regard to infrastructural central government projects and
https://www.rijksoverheid.nl/onderwerpen/publiek-private-samenwerking-pps- certain types of housing projects. However, there was little progress in the use
5
bij-het-rijk/pps-projecten/pps-infrastructuurprojecten of PPP for the education and healthcare sectors.9 Projects which had financial close in the respective year.
https://www.eib.org/attachments/epec/epec_market_update_2017_en.pdf,
https://www.eib.org/attachments/epec/epec_market_update_2018_en.pdf,
https://www.eib.org/attachments/epec/epec_market_update_2019_en.pdf
The Central Government Real Estate Agency (Rijksvastgoedbedrijf) is In order to reduce the (high) transaction costs involved compared with
6
responsible for all large PPP housing projects of the central government and traditional contracts, the introduction of model contracts for PPP projects https://www.pianoo.nl/sites/default/files/documents/documents/
rapportnieuwefinancieleinstrumenteninpps.pdf.
its agencies. An overview of these PPP housing projects can be found on: was encouraged. In 2010, the first government-wide DBFM(O) model was
7
introduced which, from the beginning, contained an infrastructure module Nieuwe financiële instrumenten in publiek-private samenwerking, 3 juli 2002 (by the General Court of
Auditors, Algemene Rekenkamer).
https://www.rijksoverheid.nl/onderwerpen/publiek-private-samenwerking-pps- and a housing module.
8
bij-het-rijk/pps-projecten/pps-huisvestingsprojecten Kamerstukken II 2004-2005, 28 753, nr. 4, Annex.
9
Kamerstukken II 2007-2008, 28 753, nr. 12, Annex.
10
https://www.pianoo.nl/nl/document/9378/reisgids-dbfmo-voor-decentrale-overheden.
29
The Netherlands
WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR In 2019 consultancy firm McKinsey was commissioned by the Minister of BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR
JURISDICTION? VERY BRIEFLY, WHY IS THAT? Infrastructure and Water Management to carry out a study into the problems JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A)
and possible solutions. One of McKinsey’s main conclusions was that the ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE
In the Netherlands PPPs have been implemented with varying degrees of success. central government put too much risk on the contractors, which made the (THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES
contracts unmanageable.14 Subsequently, the Minister announced a plan of DIAGRAMS WHERE POSSIBLE.
According to the most recent PPP progress report of the central government (2016- approach for a necessary transition in the infrastructure sector which will,
2017) the added value of DBFM(O) is, from a financial perspective, 10-15%.11 In a among other things, involve material adjustments in the contract models In the Netherlands there are three key models in PPP available which are
very recent (October 2020) report on 15 years of infrastructural DBFM projects by used. The need for a transition follows from the amount of large and complex commonly used:
Rijkswaterstaat, it was concluded that, particularly in respect of the aspects of time infrastructural projects expected for the coming years, relating to bridges,
and availability, limited extra work costs, quality, optimizations, process innovations tunnels and highways.15 Integrated contracts: DBFM(O)
and life cycle, the average performance of DBFM(O) contracts is better than that of The structure below shows the main framework (in which, of course,
other types of contract. Furthermore, the financial performance for investors, banks variations are possible, although the model basically follows this structure):
and other financiers is extremely reliable and DBFM(O) offers the government LARGEST PPPS TO REACH FINANCIAL CLOSE the contracting authority on top (Publieke opdrachtgever), concluding the
stability and predictability in relation to long-term investments.12 DBFM agreement with the private contractor (SPC). On the left side of the
A1/A6: Watergraafsmeer 1
contractor are the shareholders (Aandeelhouders) providing funding, and on
A15 Maasvlakte-Vaanplein Highway 0.88
On the other hand, some structural problems have been identified; for example, the right side the external financiers (Financiers). The contractor concludes
A16 Rotterdam Highway 0.96
in relation to lack of flexibility, the scale of the projects and the high risks resulting Blankenburg Tunnel
subcontracts with a subcontractor for design and build /EPC (Onderaannemer
0.97
therefrom, unbalanced risk distribution, (still) high transaction costs, and HSL-Zuid 1 voor ontwerp en bouw) and with a subcontractor for maintenance and
continuity within the project.13 A9 Amstelveen - Ouderkerk Amstel 0.94 exploitation (Onderaannemer voor onderhoud en exploitatie).16
Afsluitdijk Dam 0.81
Especially in the infrastructure sector, the problems have gained the upper Amsterdam Coentunnel Project (II) 0.6
Rotterdam World Gateway Expansion 0.7
hand in recent years. Dutch contractors have increasingly dropped out of
A9/Holendrecht-Diemen Road 0.59
tenders for large infrastructural projects and have complained more and
more about the distribution of risk and extreme budget overruns. The most Project | Value (EUR bn) 11
https://www.pianoo.nl/sites/default/files/documents/documents/voortgangsrapportage-dbfm-2016-
recent infrastructural project (A9 Badhoevedorp – end of 2019) was even 2017-oktober2016.pdf.
awarded to a consortium which only existed of foreign contractors/investors. Source: Inframation 12
https://www.eur.nl/essb/nieuws/publiek-private-samenwerkingen-van-rijkswaterstaat-onderzocht.
13
https://www.eur.nl/essb/nieuws/publiek-private-samenwerkingen-van-rijkswaterstaat-onderzocht.
14
https://www.rijksoverheid.nl/documenten/kamerstukken/2019/06/11/toekomstige-opgave-
rijkswaterstaat-perspectief-op-de-uitdagingen-en-verbetermogelijkheden-in-de-gww-sector.
15
https://www.rijkswaterstaat.nl/nieuws/2018/01/minister-van-nieuwenhuizen-geeft-aftrap-voor-grote-
onderhoudsopgave-infrastructuur.aspx.
16
https://www.pianoo.nl/sites/default/files/documents/documents/
reisgidsdbfmovoordecentraleoverheden.pdf
30
The Netherlands
PPP in relation to development practice (Gebiedsontwikkeling)

Area development projects in the Netherlands mostly entail overlapping “In respect of DBFM(O) projects, the risk
Publieke
interests of public and private parties; for example, with regard to ownership
opdrachtgever
of land or government authorities wishing to incorporate community facilities
allocation among the parties can be considered
DBFM(O)- into commercial project developments. Therefore these area development as being in line with common international
contract
projects require integration of public and private parties. In the contracting
phase, parties make agreements with respect to responsibilities, the
practice for this type of contract.”
Private
Aandeelhouders opdrachtnemer Financiers deployment of resources, the distribution of risks, the legal interpretation
(SPC)
and the cooperation. This can be done by means of a contractual PPP as
Eigen
vermogen
Vreemd
vermogen
investors retain a certain level of residual risk, although shorter termination
well as an institutionalized PPP.
triggers will allow the SPV (eventually in consultation with the lenders) to
replace defaulting EPC and/or O&M contractors at a certain stage in order to
Onderaannemer
Onderaannemings-contracten
Onderaannemer Alliances
voor ontwerp en voor onderhoud save the project. For the sake of completeness, the financing risk (attracting
bouw en exploitatie If projects involve technically complex or innovative work, collaboration in an
and retaining the necessary financing) is primarily an equity investor risk,
alliance may increase the quality of the works. In alliances, the contracting
although if the underlying circumstances giving rise to issues are risks borne
authority and the private market party perform one or more tasks of the
by the authority or the sub-contractors, the equity investor should be covered
construction process jointly and share the associated risks. A variation of an
through that risk allocation.
alliance is joint research and development for innovative solutions. A good
The central government uses two government-wide DBFM(O) Model
example is the innovative partnership for innovative solutions not yet available
Agreements (Rijksbrede Modelovereenkomst DBFM(O)): the model DBFM(O) for
on the market, which has been acknowledged as a way of cooperation between
infrastructure projects and the model DBFM(O) for housing projects: NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL
government authorities and private parties in the latest procurement directives.
AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY
https://www.rijksoverheid.nl/onderwerpen/publiek-private-samenwerking- BENEFITS FACTORED IN?
pps-bij-het-rijk/documenten/richtlijnen/2016/06/01/dfbm-overeenkomst-
rijkswaterstaat The 2016-2017 central government progress report on PPP mentioned how
THE KEY MODELS.
the business principles used in PPP contribute to a responsible and efficient
https://www.rijksoverheid.nl/documenten/richtlijnen/2016/04/01/rijksbrede- use of public funds, by:
In respect of DBFM(O) projects, the risk allocation among the parties can be
modelovereenkomst-dbfmo-huisvesting-rijksvastgoedbedrijf
considered as being in line with common international practice for this type
• a life cycle costing approach, taking into account all costs and risks during
of contract. This means that the DBFM(O) contract will provide for certain
the life cycle of the project and optimizing these costs and risks;
limited authority risks, a form of relief for Force Majeure, and allocating the
• risk management;
remaining risks to the SPV. The SPV will on its side typically push all these
• performance measurement and performance incentives; and
risks (design, construction, late delivery, etc.) to the EPC and O&M parties with
• efficiency benefits and disciplining effect with regard to the achievement of
which it will sub-contract the works and maintenance obligations, on a back-
objectives and the fulfilment of agreements through private financing.
to-back basis. Given that it is usual that the EPC and O&M contracts foresee in
certain limitations on liability (such as caps), the SPV and therefore the equity
31
The Netherlands
Furthermore, the following positive aspects can be mentioned: • scale of the project and the resulting high risk profile are challenging. The At the same time, the applicable tender rules following from the European
scale and complexity are often a main cause for problems that arise during procurement directives limit the possibility of making (substantial) changes to
• most DBFM(O) projects are executed within budget, on time and according design or execution. Risks are large and difficult to manage in case they the contract terms during the contract period.
to the output required by the client; materialize;
• the quality and consistency of Dutch DBFM(O) projects and policy being • distribution of risks between parties is suboptimal and the joint handling For the other types of PPP contracts, in general no standard models are used,
praised by national and international market players, who consider the of (and joint sense of responsibility for) risks and problems is (too) limited; leaving more space for flexible arrangements dependent on the nature and
Netherlands as one of the frontrunners on DBFM(O); and the scope of the project.
• central-government-wide standardization by the use of two model • long-term nature of the contracts has consequences for the continuity
DBFM(O) agreements; within the project and the integrity of project management. Personnel
• focus on value for money, not regarding DBFM(O) as a goal in itself, but changes and changes between the teams in the various project phases
only using DBFM(O) in case this results in value for money for the taxpayer; have implications for the transfer of expertise
and
• a well-filled and reliable pipeline of projects in the coming years, In addition to the aforementioned contract-related issues, other challenges
particularly in the field of infrastructure. are mentioned in McKinsey’s report on the infrastructure sector:18 price
Janet Meesters
pressure and a too large focus on price (compared to quality, sustainability,
Partner
Please be also referred to the benefits that were identified in the 2020 report etc.) results in the profit and risk margin priced in by tenderers turning out
T: +31 205 419 248
on DBFM projects (answer to question 3). to be insufficient to cover major risks. This has resulted in occasional major
M: +31 643 142 758
financial setbacks that put pressure on the financial position of market
janet.meesters@dlapiper.com
players. There is insufficient innovation, limited productivity growth and lack of
WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS? long-term perspective, at times resulting in failure costs.
Especially in the infrastructure sector, the market dynamic and the way risks
are allocated in the key model restrict market forces. Market players are HOW FLEXIBLE ARE THE KEY MODELS?
becoming more and more hesitant to participate in large projects, resulting in
less bids submitted in tenders for EUR250 million + projects. In general, the model DBFM(O) contracts are not considered to be very
flexible; lack of flexibility is one of the concerns of parties working with
Furthermore, the challenges identified in the very recent report17 on 15 years the models. The models do contain a flexibility mechanism in the form
of DBFM are the: of a comprehensive arrangement for implementing changes, whereby a
distinction is made between minor changes and other changes (Annex
• long-term nature of the contracts is at odds with the need on the client’s 5 to the model). However, given the long term of the contracts, it can be
side to respond to new developments. The current contract terms do not questioned whether this mechanism provides for sufficient flexibility; for 17
seem to be suitable to respond to this policy need for flexibility; example, in relation to innovations and new sustainable solutions to be https://www.eur.nl/essb/nieuws/publiek-private-samenwerkingen-van-rijkswaterstaat-onderzocht.
18
• transaction costs (tender costs) are considered to be high; incorporated in the project. https://www.rijksoverheid.nl/documenten/kamerstukken/2019/06/11/toekomstige-opgave-
rijkswaterstaat-perspectief-op-de-uitdagingen-en-verbetermogelijkheden-in-de-gww-sector.
32
Norway
Norway
33
Norway
PPP PIPELINE
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION The new national pipeline comprises three highway projects (preceded by
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME three projects reaching financial close during the period 2001 to 2006); details Expressions of Interest 1
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS of which are provided in the below table. 0.89
OF INVESTMENT. Transaction Launch 2

0.03
Sector Name Approximate Developer /
RFP Returned 1
The use of PPP as delivery model for infrastructure projects has been a highly Forecasted Bidder 1
debated and politically charged topic for the better part of the last 30 years in Investment
Social Infra 2
Norway with Conservative governments arguing positive effects of PPPs through 0.03
Infrastructure Rv 3 and rv 25 EUR510 million / Skanska
mainly better value for money and increase of efficiencies in the delivery of 2
(Highway) Ommangsvollen– GBP460 million consortium as Transport
infrastructure projects, while labour/left governments reject the idea of private 1.89
Grundset/ preferred bidder
finance in public infrastructure as a more expensive option for Norway.
Basthjørnet Source: Inframation Deal count
(Løten–Elverum)
At a national level, PPP projects have historically been limited to the transport Deal value (EUR bn)
in Hedmark
sector (highways). In the municipalities, PPP projects have been used for
County
schools and other social infrastructure.
Infrastructure Rv 555 EUR920 million / Bidder to be
WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN
(Highway) Sotrasambandet GBP830 million appointed 1Q /
While there is an established, relatively long-term plan in place at a national YOUR JURISDICTION?
(the Sotra 2Q 2021
level, there is no coordinated steer or effort (nationally) at the municipal level
connection) in
– the decision on the delivery model for appropriate projects being left to the The first notable PPP projects were highways, implemented in the period
Hordaland County
individual municipalities. Both at national level and municipal level, PPP serves 2001-2006. While PPP as a delivery method exists as an alternative in Norway,
Infrastructure E10 and rv 85 EUR640 million / TBC
as an addition to the standard delivery models only, and is not widely used. its use is limited in the context of total infrastructure and infrastructure
(Highway) Tjeldsund– GBP580 million
construction volume.
Gullesfjordbotn–
While a political compromise (at national level) has led to a new pipeline
Langvassbukt in
of PPP highway projects at a national level, that pipeline is still limited, and
Nordland and
it is uncertain whether it will be expanded to additional highway projects WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR
Troms counties
or to other infrastructure classes. At municipal level, projects are relatively JURISDICTION? VERY BRIEFLY, WHY IS THAT?
few, low value and arbitrary (about 30 projects in total in the last 10-year
period, ranging in value between NOK10-20 mill (approx. EUR1-2 million / The PPP projects that have been implemented at a national level in Norway have
GBP800,000-900,000) to a high of approx. NOK100 million (approx. EUR9 all been very successful – at least from a government point of view (but also
million / GBP8 million), and in terms of contractual framework they are more for the bidders/project companies, save possibly in the case of one project). All
akin to “finance leases”. previous projects have come in on or before time and on or below budget for
the government. The collaboration between the government and PPP project
companies has also been widely reported to be good, pragmatic and efficient.
34
Norway
Despite the positive track-record, the use of PPPs today for delivery of public BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR
“PPPs involve long‑term commitments.
infrastructure both at a national level as well as in municipalities, continues to be JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A)
the subject of intense political debate and public scrutiny – acceptance/rejection ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE Breaking a PPP contract early can be
of the PPP model often depends on politics. (THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES
expensive, as counterparties will be entitled
DIAGRAMS WHERE POSSIBLE.
Politically, the prevailing conservative view is that private ownership and project to be compensated for the return they would
finance stimulates efficiencies and provides good value for money for the All Norwegian PPPs – whether at a national or municipal level – are availability
have derived from the contract had it run its
public sector. The prevailing labour/left view is that PPPs do not deliver anything based and use a classic, simple PPP/contract structure i.e. the remuneration
that cannot be procured by the public sector under other, traditional forms of for the private partner does not take the form of charges paid by the users course.”
public contracting schemes; private enterprise and capital income in respect of of the works or of the service, but of regular payments by the public partner
public sector initiatives is generally not desirable and private (project) finance based on the level of service provided (including construction cost).
• the risk of the SPV being liable to the government (or a third party) for an
will constitute a much more expensive option for the Norwegian public sector
amount in excess of what the SPV can recover from its subcontractors; and
compared with sovereign and directly applied public debt.
• the risk of a “gap” arising in the pass-through of rights or obligations from
its contract with the government to its subcontractors.
The current pipeline of new highway PPP projects were accepted by the THE KEY MODELS.
labour/left parliamentary wing as a compromise on the condition that the
projects and any private funding will be paid for by the users through private Ordinarily in PPPs, all the risks that the SPV assumes under the contracts
NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL
sector (toll) money. All of the projects use availability payments (no volume with government in relation to the design, construction, operation and
AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY
risk is assumed by the PPP company) and the tolling is collected by the maintenance of the infrastructure will be passed through to the SPV’s D&C or
BENEFITS FACTORED IN?
government and paid-back through public accounting (eventually finding O&M subcontractor. Typically, the only risks that remain within the SPV, and to
its way through to the availability payments). which its equity investors are therefore exposed, are:
Better Value for Money (VfM)
Better VfM and the efficiencies of PPPs have been the key drivers for PPP
• the risk of a subcontractor to the SPV not being legally liable to the SPV for
projects in Norway. Norway has wanted to provide for a mix of delivery
a breach of its obligations, because of a cap on or exclusion to its liability;
models, where PPPs represent only one alternative. Owing to Norway’s robust
• the risk of a subcontractor to the SPV becoming insolvent;
economy, access to funding to implement or improve infrastructure has never
• the risk of the SPV not being able to refinance its debt on terms consistent
been a factor in Norway’s use of PPPs as delivery model.
with those assumed in the financial model;
• the risk of an upstream change of control occurring in respect of an equity
investor in breach of the PPP contract;
• the risk of the SPV being liable to a subcontractor (or a third party) for an
amount in excess of what the SPV can recover from the government;
35
Norway
Superior cost, time and service outcomes HOW FLEXIBLE ARE THE KEY MODELS?
Studies undertaken in Norway for the pilot pipeline of PPP projects
implemented in the period 2001 to 2006 showed that these projects For the national level PPP contracts in Norway, the government retains a
experienced superior cost, time and service outcomes compared with fair degree of flexibility in that it can, comparatively liberally, instruct the PPP
traditionally delivered projects. There was some debate regarding the cost project company to undertake changes.
of funding, i.e. private sector (project) finance versus sovereign debt cost of
funds. Overall, the studies concluded that Norwegian sovereign debt would
have a lower all in cost on an isolated basis.
Risk transfer
A key benefit of PPPs is that they achieve significant risk transfer from the
government to the private sector. In Norway, the risk transfer aspect of PPPs
The new Norwegian national highway PPP project pipeline spans very
is viewed as an additional benefit alongside better VfM and cost, time and
diverse projects both in terms of value as well as complexity. This has
service outcomes.
created different challenges for the market and in terms of agreeing the
PPP Contracts (as a “one size fits all” concept is difficult to get to and where
the government may need to show additional flexibility, also due to new
WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?
challenges as a result of COVID-19).
Using private finance adds additional cost

On an isolated basis the use of private finance adds additional costs that do
not arise under a publicly‑funded contract delivery model, as the SPV will
need to pay interest on the debt finance, and will be expected to provide an
equity return to its equity investors. This aspect of PPPs has been mitigated
in the new pipeline of national highway PPP projects in Norway by the
use of large milestone payments from the government on or shortly after
Fredrik Lindblom
construction completion (hence only a minor portion of project finance debt
Partner
needs to be carried and amortized by the project company through the
T: +44 2071 537 341
project life-cycle).
M: +44 7738 295 222
fredrik.lindblom@dlapiper.com
Insufficient flexibility
PPPs involve long‑term commitments. Breaking a PPP contract early can
be expensive, as counterparties will be entitled to be compensated for the
return they would have derived from the contract had it run its course.
36
Saudi Arabia
Saudi Arabia
37
Saudi Arabia
“Finally, it is important to note that Saudi

BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION Saudi Arabia is co-procuring a new causeway linking the Kingdom to Bahrain.
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME The first causeway was built in the 1980s to serve road traffic. The new Aramco procures a wide range of projects on
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS causeway will serve both road and rail and will operate on a PPP basis.
a BOT basis that shares many of the structural
OF INVESTMENT.
Finally, it is important to note that Saudi Aramco procures a wide range of features of typical PPP projects.”
The most active PPP market in the Gulf Cooperation Council (GCC) is Saudi projects on a BOT basis that shares many of the structural features of typical
Arabia. This is primarily due to Vision 2030, a strategic framework to reduce PPP projects. Although power and cogeneration (power / water / steam) are
Saudi Arabia’s dependence on oil, diversify its economy, and develop sectors common technologies procured on a BOT basis, the BOT model has also been WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS
such as health, education, infrastructure, recreation, and tourism. It is adopted for accommodation projects and carparking. IN YOUR JURISDICTION?
envisaged, that the use of PPP financial models will enable the Kingdom to
effectively undertake the initiatives under the Vision 2030 framework on an Beyond Saudi Arabia, PPP experiences in the GCC differ although the basic The current wave of interest in Saudi Arabian PPP projects is an evolution of
expedited basis. premise remains the same. For the most part closed PPP deals are confined the power and water models that were introduced in Saudi Arabia in the 2000s.
to the utilities sectors. In those sectors PPP models have been applied Saudi Arabia’s first utility power and water projects were procured through a
There is a large focus on the utilities sector: current renewable energy and extensively since the late 1990s, with some markets such as Abu Dhabi and joint venture procurer co-owned by the national power and desalinated water
water PPP projects include 2 power, 3 desalination and 3 wastewater projects Oman being prolific procurers of private utility projects. utilities. That IWPP model was later adopted by other utility companies in Saudi
with a combined value of approximately USD2.735 billion and renewable Arabia, including by Marafiq for power and water cogeneration (2005-2010)
energy and water projects that are currently in the procurement phase Outside of utilities, PPP projects have been procured on an ad-hoc rather than and Saudi Electricity Company for conventional power generation (2008-2015),
include 10 power, 3 desalination, 1 water storage facility, 3 wastewater and 1 centralized basis. Accordingly volumes have been low and there have been a Saudi Electricity Company again for renewable energy (2015-2017), the Ministry
water transmission pipeline with the combined value of approximately range of failures. In recent years steps have been taken to address these issues, of Energy’s Renewable Energy Project Development Office for solar and wind
USD4.68 billion. with PPP-units and PPP laws put in place to begin the roll-out of PPP structures. project (2017-ongoing) and finally for various water infrastructure schemes
(Saudi Water Procurement Company (2018-ongoing).
PPP outside utilities GREENFIELD PPP DEAL VOLUME 2020
Although evolution of established utilities models was the order of the day PPP structures were adopted for a range of infrastructure projects prior to
for the first Vision 2030 PPP schemes, social infrastructure PPP projects are Vision 2030. However, these schemes had mixed success. Certain projects
beginning to gain traction. Substantial numbers of building and facilities were awarded after prolonged bidding processes (Medinah Airport (2009)).
management projects are currently under procurement. The first phase (60 Others were cancelled, delayed, scaled-back or converted to conventional
SAU Deal value (USD bn)
schools in the Jeddah area) has been awarded and future phases are expected procurement. Notably Saudi Landbridge, a cross country railway, was
shortly as the Kingdom works towards its initial objective of procuring 300 PPP Social Infra (1.23) first tendered on a PPP basis in 2008 and is currently proceeding on a
schools. The tendering process for the Alansar Hospital PPP has also begun. Environment (0.55) conventionally procured basis. “Colleges of Excellence” began in 2013-2014 as
Alansar is viewed as a pathfinder project, with multiple hospital PPPs to be Power (0.62)
a means of bringing overseas technical education providers to Saudi Arabia.
undertaken in the near future for both facilities and clinical services. Following the additional RFP round in which a number of PPP agreements were
At the core of the healthcare PPP agenda are stated goals to increase signed, we understand that providers can now provide unsolicited proposals.
Source: Inframation
hospital capacity by 25% and substantially increase the size of the private Accordingly no further tender rounds are expected.
healthcare industry.
38
Saudi Arabia
Outside Saudi Arabia and beyond utilities, the successful projects that come to Looking across the region, there is renewed interest in non-utility PPP PPP PIPELINE
mind as genuine PPP structures are the social housing projects we have seen projects:
in Bahrain and Kuwait and a bus PPP in Bahrain. These projects began to come
to market in the mid-2010s. Recent projects elsewhere in the region include • Kuwait established the Partnerships Technical Bureau in 2008 and by
Social Infrastructure 2
carparking and streetlighting. virtue of its 2014 PPP law established the Kuwait Authority for Partnership Other 3
Projects (KAPP). KAPP has progressed a municipal waste facility and Transport 4
accommodation projects. A rail PPP is contemplated. Environment 23
WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR • Bahrain has ongoing PPP procurement in the form of the Metro PPP and
JURISDICTION? VERY BRIEFLY, WHY IS THAT? the joint venture procurement of the Saudi-Bahrain causeway.
Sector | Deal count
• The Emirate of Abu Dhabi has had a PPP manual for five years and
Source: Inframation
In Saudi Arabia PPP models are critical to the achievement of Vision 2030. introduced PPP related laws in 2019. Managed services contracts are
Accordingly there is substantial support for PPP in the Kingdom. However, already common in Abu Dhabi across a range of sectors. The Abu Dhabi
the successful PPP programs to date have for been evolutions of existing Investment Office will undertake PPP project procurements. Separately, the
programs rather than new programs. Ghadan 21 program was announced recently under which approximately BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR
USD2.5 billion of PPP projects are being considered across the social JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A)
On the whole, the PPP programs in Saudi Arabia that have gained traction infrastructure and transportation sectors. ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE
so far have been viewed positively. Beyond simply delivering the relevant • Dubai has had a PPP law since 2015 and in 2017 introduced a PPP manual. (THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES
assets and services, they have also assisted in broader social and economic In addition to managed services contracts, authorities have commenced DIAGRAMS WHERE POSSIBLE.
development. For example, in most cases there are contractual requirements procurement exercises under the Dubai PPP law.
for employment of nationals that are in excess of statutory requirements. • Qatar has recently introduced a PPP law and its Public Works Authority is Availability payments
Further, PPP projects typically require minimum levels of “local content.” Local expected to procure up to 12 PPP projects including transport and social Considering the general evolution of PPP models from the successful
content compliance was first introduced in the renewable energy program infrastructure. utility structures, it shouldn’t be surprising to see most PPP models are
and required bidders to undertake to deliver a minimum amount of local • Oman established the Public Authority for Privatisation and Partnership and structured on an availability payment basis under which the government
content through both the construction and operation periods. Compliance is allocated approximately 40 projects to it for consideration on a PPP basis. authority will make an availability payment sized to suit the CAPEX and fixed
measured and audited by licensed third-party auditors. Substantial penalties OPEX obligations of the project company plus a further output payment to
are common for failing to meet the requisite levels of local content. A national The key message here is that PPP is becoming seen as the preferred compensate the project company for its variable OPEX. At the core of this is
local content authority has been established to standardize local content procurement route for infrastructure across the GCC. If we were asked this a belief that it is not possible to transfer demand risk to the private sector.
requirements and monitor compliance with these contractual requirements. question in 2025, we would expect to say that the steps taken at the end of Although this may be the case in respect of the first projects to be procured
the last decade have provided frameworks under which the public and private in particular sectors, Saudi Arabia is a large country with a large percentage
sectors can deliver successful projects on a consistent basis. of Saudi nationals in its population. Accordingly, demand risk should begin to
39
Saudi Arabia
pass to the private sector over time. Demand risk transfer will be more difficult Quasi-PPP
“In lieu of implicit demand driven bankability
in other GCC countries where expatriate workers make up large amounts There are also a wide range of programs and private developments both
of the population. Their residency in the GCC is linked to employment and within Vision 2030 and outside that, although not strictly PPP, will deliver cases, projects in the GCC have relied on
therefore a substantial aspect of the bankability case for any project is the similar benefits to PPP. For example, the Red Sea Development Company
government guarantees. As government
threat that expatriates leave due to failing employment markets. (RSDC) is owned by the public investment fund (PIF). RSDC is constructing
a 16 hotel resort that will have 3,000 beds in its initial phase. The Red Sea contingent liabilities have grown, efforts
Government support project will employ circa 30,000 people and will be responsible for its own
have been made to soften the nature of the
In lieu of implicit demand driven bankability cases, projects in the GCC have infrastructure. Contracts have been let for certain construction works
relied on government guarantees. As government contingent liabilities have and a private sector owned utilities concession has been awarded under guarantees on offer.”
grown, efforts have been made to soften the nature of the guarantees on offer. which power, water, wastewater, district cooling and telecoms services will
be provided. In essence a master-planned city, the Red Sea resort will see
RFP requirements typically require lump-sum turnkey construction
In lieu of an express guarantee, bankability cases have been established substantial amounts of public services constructed, owned and operated by
contracting, with minimum bankable terms included in the RFP. At bid
due to support agreements between the client and a government-owned the private sector.
submission bidders must evidence a full-form EPC contract and draft contract.
investment grade credit. In such support agreements the investment grade
From a construction risk therefore, equity risks are relatively limited. Procurers
credit agrees to provide the client with funds if it is ever unable to fund its The Neom city-state is also being developed by PIF. It will deliver many of the
would expect to see funded and unfunded contingencies in bid models. The
liabilities. However, no direct contractual relationship exists between the traditional benefits of PPP. Similar to RSDC, it will tender many of its own PPP
nature of the assets being procured and the contracting structures means
investment grade credit and the project company or lenders. and joint venture projects. At its core however, Neom will be an incubator
that the likelihood of ever relying on unfunded contingencies is limited.
of emerging technologies, providing a publicly procured environment for
The success of the Omani electricity sector law in removing express growth businesses in the technology and energy sectors. Neom has already
Similarly for O&M, minimum terms are provided in the RFP with signed term
guarantees should not be understated. In essence the Omani Electricity announced the procurement of a pilot project, a concentrated solar dome-
sheets and draft contracts a minimum. The O&M company could reasonably
sector law provides that the Omani government will support the electricity desalination plant and a USD5 billion joint venture with ACWA Power and Air
be expected to be an SPV established by the sponsors. Caps on liability are
sector. This approach has been considered for a range of other sectors both Products in the green hydrogen sector.
typically structured on both an annual and aggregate basis such that sponsor
in Oman and elsewhere although we are not aware of an equivalent law.
equity investments to support the O&M company are unlikely.
Government shareholdings EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS

Financing
Government equity interests were historically a feature of the Saudi Arabian IN THE KEY MODELS.
From a financing perspective, at bid submission bidders are generally
IPP/IWPP projects. However, Vision 2030 structures have tended not to have
expected to show that they have limited recourse finance models with
a government shareholder. Rather, project development agreements and EPC and O&M
substantial signed commitments for senior debt (50% of senior debt is
project implementation agreements are commonly executed by the client and Given the starting point for many PPP structures in Saudi Arabia are the IWPP/
the lowest we are aware of). Limited recourse finance can be mini-perm
the sponsors as a means of creating contractual obligations that historically IPP models in which the government held 50-70% share of project company
structured. However, in only one recent project has a hard mini-perm been
would have been ensured through shareholders’ agreements in structures equity, PPP structures for the current wave of PPP projects tend to be sponsor
allowed. There has been a trend of clients requiring a share of any gains from
that included a government shareholder. As one would expect, an SPV is friendly from an equity perspective and conservative as to the extent of risk
refinancing that are not established in the initial financial model. Soft mini-
established for undertaking the project. that project companies are allowed to take.
perm related refinancing benefit is not shared, however.
40
Saudi Arabia
Concession risk allocations • rapid infrastructure roll-out with little capital expenditure;
“Privatization is on the agenda for other GCC
Concession agreements provide all of the typical project company • timing and budget control passed to the private sector;
protections including change of law/regulation and political force majeure • development of local private sector capabilities through local content states. Kuwait is planning to privatize a power
events. Increased cost relief and extensions of time are the typical means requirements; and
and water plant in the near future.”
of compensation pre-commercial operation. Post-commercial operation, • exposure of key sectors to international best practice.
deemed payments and increased cost relief are common.
As noted above, the PPP-unit concept is not only applied in Saudi Arabia. Tax
Termination payments are sponsor and lender friendly compared to more Kuwait has had the Kuwait Authority for Partnership Project for some time Tax equalization (or lack thereof) is another oft-quoted challenge for
established markets. Following a project company event of default, the client and Oman introduced the Public Authority for Privatisation and Partnership international investors in Saudi Arabia. A project company’s tax liabilities are
has the right but not the obligation to purchase the project for outstanding recently too. In many cases, however, (both currently and before the assessed pro-rata to the domicile of their shareholders. Profits attributable
debt. Termination for prolonged force majeure will result in compulsory introduction of PPP-units) a country’s Ministry of Finance retains a central to Saudi shareholders attract Zakat at an effective 2.5% whereas profits
acquisition by the client for outstanding debt plus the costs of termination. role in the procurement of PPP structures. Accordingly, in those countries it is attributable to overseas shareholders attract corporation tax at 20%. Further,
Other than one example of which we are aware, termination for client event reasonable to expect that community benefits have lesser significance than withholding tax is payable at 5% on profits remitted to overseas entities.
of default, political force majeure and convenience (in some models) leads to financial fundamentals. Accordingly, structuring a consortium with Saudi ownership is often seen
full repayment of debt, termination costs and modelled equity returns. Models as critical to offering a competitive financial proposal while maintaining
that provide for a lender haircut are unlikely to be supported in the GCC. reasonable equity IRR.
Accordingly, there is no risk that sponsors would have to gross-up lenders due WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?
to a termination payment haircut. Public policy considerations
Local experience Across the GCC, a substantial challenge for developers has been the nascent
Considering most of the sectors earmarked for PPP have not had foreign nature of the market. Procurements have been stop/start as countries have
NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL direct investment in the Kingdom, coming to terms with the legal and wrestled with the various options on how to proceed with infrastructure
AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY commercial landscape is a substantial challenge for many participants that are procurement. In some cases, procurements have been too optimistic in terms of:
BENEFITS FACTORED IN? new to the market. It should be of little surprise that the initial projects under
the Vision 2030 program have been won by companies and consortia that • the size of the procurement exercise;
To facilitate Vision 2030, Saudi Arabia established the National Centre For have experience in Saudi Arabia. In particular, supply chain (for local content), • the complexity of the project structure; and
Privatisation (NCP). Pursuant to NCP’s establishing regulations and handbook, and the availability of Saudi national employees are commonly quoted • transfer of risk.
NCP is the stated procurer of PPP projects. However, in practice procurement examples of challenges for overseas developers.
activities were performed by the relevant sectoral government authority, Companies with a longer term view of the region and involvement in multiple
subject to NCP’s review and approval. Due to this oversight, projects have sectors have tended to ride the waves of public policy better than those that
been structured and approved for release with common goals in mind. In have targeted specific opportunities because they have not been over reliant
summary, these goals are: on any particular project.
41
Saudi Arabia
PPP projects in the GCC tend to follow a procurement method in which

financial, technical and legal advisors to the client develop a form of RFP
document and model contracts against which bids will be evaluated. As
PPP is one of many components within the Vision 2030 framework. Vision
highlighted elsewhere, the client and the RFP document are subject to
2030 also provides for privatization of government-owned companies
review and approval of the relevant PPP-unit and/or the Ministry of Finance.
and corporatization of many public services. NCP is also responsible for Keith Bullen
Accordingly, efforts are made to ensure that PPP models are appropriate.
managing the privatization and corporatization processes and is expected Partner
However, in doing so flexibility is limited.
to deliver the same social benefits that are expected from the PPP T: +971 443 862 34
programs. The first privatizations have begun to take place through the M: +971 551 828 080
The successful bidder generally submits the lowest cost compliant proposal.
break-up and sale of Saudi Grains Organisation (the Kingdom’s state-owned keith.bullen@dlapiper.com
Although it is common for bidders to mark-up documents in their bids, few
flour mills) and the privatization of Ras Al Khair power and water project.
procurers have issued a pre-release of bid documents for market comment
or allowed bidders to “price” the effect of a deviation from the RFP. Therefore,
Privatization is on the agenda for other GCC states. Kuwait is planning to
bidders do make amendments to project documentation in their proposals
privatize a power and water plant in the near future. Abu Dhabi’s state-
and the suitability of such mark-ups are taken into account during the bid
owned oil company ADNOC has undertaken transactions in which equity
evaluation phase of the projects. The client’s rejection of deviations from the
investors will purchase 49% interests in assets such as real estate portfolios
RFP does not allow bidders to vary their proposals, accordingly the bidder is
and pipelines.
expected to maintain its price and remove such deviations or be disqualified.
Healthcare is an example of a corporatization. Existing healthcare assets

operated by the state will be packaged into businesses with the intention of
allowing the businesses to compete in a regulated market. It is conceivable
that at some point ownership of the businesses will be transferred to the
private sector.
42
The UK
The UK
43
The UK
BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME YOUR JURISDICTION? JURISDICTION? VERY BRIEFLY, WHY IS THAT?
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS
OF INVESTMENT. PPP was first introduced to the UK infrastructure market in the early 1990s, While there are a number of benefits associated with the PPP model (please
following the launch of PFI by conservative Prime Minister John Major in 1992 see question 6 below, as well as the other jurisdictions addressed in this
Since their introduction, the UK government capital investment using the as a means to take debt off government balance sheet while securing the report), as noted above, PFI was subject to a number of criticisms and political
Private Finance Initiative (PFI) and its successor Private Finance 2 (PF2) has infrastructure that the country badly needed. After a relatively slow uptake discussion, including:
typically averaged approximately GBP3 billion a year.19 There are currently from both the public and private sectors, PFI took hold in the late 1990s and
more than 700 operational PFI contracts in place in the UK with a nominal grew steadily (in number of projects and breadth of sector) over the next • the model’s perceived inflexibility (please see question 8 below for further
capital value of GBP57 billion across the entire spectrum of asset classes and 15 years, with a number of standardized document suites developed on the discussion of this topic);
sectors.20 In Autumn 2018, however, the UK government reported that the PFI principles (e.g. Standardization of PFI Contracts Version 4, MOD PAV2, Building • the terms and length of the government’s financial commitment to service
and PF2 had not been used since 2016 and would no longer be used for new Schools for the Future). payments (e.g. private finance interest rates in excess of the government’s
infrastructure projects in England. cost of borrowing and the payment of unitary charge payments well into
With the 2008 global financial crisis increasing the cost of private finance, and the future); and
New delivery models have started to emerge in devolved administrations political pressure following a number of criticisms of PFI, an independent review • complexity and inefficiencies.
(e.g. the Mutual Investment Model (MIM) which, in 2020, has seen the Welsh of PFI was conducted by HM Treasury in 2011, which led to the launch of PF2 in
Ministers appoint a private sector delivery partner for the GBP1.5 billion December 2012. The fundamental principles of the PF2 model were the same PF2 sought to address some of these concerns, but the model still received
21st Century Schools and Colleges Band B program and financially close as PFI, but PF2 sought to combat some of the concerns surrounding PFI by criticism that it resulted in additional cost for the taxpayer (e.g. insurance
the GBP1.3 billion development of the A465 Heads of the Valleys road), establishing a common understanding of the key risk allocations, reducing time costs, higher cost of borrowing, lenders fees and SPV management fees)
showing there is still an appetite for private investment in delivering public and cost of negotiating contracts and bringing a consistency of approach. and was not as efficient as its proponents suggested, something that was
infrastructure, but central government has yet to announce a proposal for a compounded by the high-profile insolvency of Carillion in January 2018.
“PF2 replacement.” It is these principles that have formed a strong basis to export the PFI model
internationally, with other jurisdictions building on the success stories.
GREENFIELD PPP DEAL VOLUME 2018 - 2020
Perhaps, in developing any PF2 successor, the UK government can take
comfort from these lessons learnt to help it develop a new, sustainable
model that will meet the country’s growing infrastructure needs as well as
contributing to the government’s target of net zero by 2050.
Deal value (GBP bn)
Transport (2.03)
Social Infrastructure (1.08)

19
Environment (1.1) National Audit Office, PFI and PF2, January 18, 2018 - https://www.nao.org.uk/wp-content/
uploads/2018/01/PFI-and-PF2.pdf
20
National Audit Office, Managing PFI assets and services as contracts end, June 5, 2020 - https://www.
Source: Inframation nao.org.uk/wp-content/uploads/2020/06/Managing-PFI-assets-and-services-as-contracts-end.pdf
44
The UK
PPP PIPELINE
the form of a unitary charge from the government which will be calibrated to take In addition, and while not traditional PPPs, the Regulated Asset Base (RAB)
account of any availability or performance related deductions. Notwithstanding model is used for projects with regulated revenue streams (i.e. where an
the withdrawal of PF2, many government departments and local authorities element of risk has been transferred to the users, similar to the economic
Pre-Launch 1.32 7
Expressions of Interest
have sought to use the PPP structure for a broad range of social infrastructure infrastructure model), which can result in a reduction to the cost of raising
0.2 1
Transaction Launch 1.05 4 projects, which has resulted in a number of models being adopted. These include: finance, and the concession model gives the private sector an exclusive right
RFQ Returned 0.13 2 to the operation and maintenance of an asset for a finite time period.
Prequalified Proponents 0.2 1 • MIM – where the Welsh government takes an equity stake in the SPV and
Preferred Proponent 6 there is a greater focus on the project delivering community benefits; The RAB model has been adapted successfully for the Thames Tideway Tunnel
0.25 0.06 0.5 0.62
• HUB – the delivery of new community facilities by five hub companies project which, together with the benefit of a government guarantee, enabled
Value (GBPbn) across Scotland that is centered around continuous improvement to realize it to gain an investment credit rating and therefore draw finance from pension
England Wales Number of projects better value for the taxpayer; funds and other long-term institutional investors.
Scotland
• LIFT – a type of pre-procured PPP devised to redevelop and replace primary
Northern Ireland
care facilities which is based on a “lease plus” or “land retained” agreement. There are some industry participants that want to see the RAB model
Source: Inframation expanded to social infrastructure, but it is difficult to see this being adopted
Other tools are available to assist with funding infrastructure projects in the on a large scale as the assets do not lend themselves to a “user charge”
UK; for example, the UK Guarantee Scheme (which operates on a commercial model, so there is no income stream to regulate.
BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR basis but allows certain projects to benefit from government-backed support
JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A) at lower rates where there may be a funding shortfall), Housing Guarantees The Chancellor’s 2021 Budget promised GBP40 billion for a new National
ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE (to support the development of residential housing in target areas), Co- Infrastructure Bank based in Leeds, which is certainly encouraging for the
(THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES investment Funds (private sector funds in new technologies e.g. digital country and the infrastructure sector. To realise the true benefits of this
DIAGRAMS WHERE POSSIBLE. infrastructure and charging infrastructure – where the government co-invests opportunity, there needs to be the prospect of real capital being injected into
to accelerate, roll-out and scale such projects, while gaining a commercial projects from an institution that provides confidence to the market. To achieve
A “PPP” refers to transactions where the government places a contract with return as investor) and the Public Works Loan Board (a statutory body this, the new bank needs to be independent from Government and not just
the private sector for the design, construction, operation and/or maintenance which issues government loans to local authorities to finance infrastructure an extension of HM Treasury – a new bank with full banking and borrowing
services associated with an infrastructure asset, with private finance secured to investment).21 powers, led by experienced bankers. We look forward to further details on
fund the initial capital expenditure (typically a split of 80% debt and 20% equity). how the National Infrastructure Bank will operate and interface with the
Economic infrastructure private sector.
Social infrastructure While there are more social infrastructure PPP projects in the UK by number,
PFI / PF2 (and the related sector-specific standard documentation) were the economic infrastructure PPP projects are still prevalent in the UK; for example,
traditional models for procuring social infrastructure in the UK; these PPPs are the Mersey Gateway bridge. These models are reliant on payments from users
typically “accommodation based” and the private sector’s revenue stream takes for a proportion of the finance repayment.
21
DLA Piper, The UK has signalled the demise of traditional models of PPP – will we follow suit in New
Zealand?, March 29, 2019 - https://www.dlapiper.com/en/newzealand/insights/publications/2019/04/the-
uk-has-signalled-the-demise-of-traditional-models-of-ppp/
45
The UK
EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS IN NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL
“Despite the criticisms of PFI, PPPs are
THE KEY MODELS. AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY
BENEFITS FACTORED IN? generally accepted (by both the government
The general principle adopted in UK PPPs is that the majority of the risks
and the private sector) to offer benefits to
that the SPV assumes under the contract with government in relation to the Despite the criticisms of PFI, PPPs are generally accepted (by both the
design, construction, operation and maintenance of the infrastructure asset government and the private sector) to offer benefits to the public sector and the public sector and end users, which center
will be flowed down to the D&C and/or O&M subcontractor. Typically, in social end users, which center around achieving the best value for money for the
around achieving the best value for money for
infrastructure projects the only risks that remain within the SPV, and to which taxpayer.
its equity investors are therefore exposed (subject to the limited recourse the taxpayer.”
nature of the contracting structure), are: Risk allocation
As mentioned above, PPP allocates a large number of risks to the private
• the risk of a subcontractor to the SPV not being legally liable to the SPV for sector (whether at the SPV or the sub-contractor level) based on the general
a breach of its obligations, because of a cap on or exclusion to its liability principle that a risk should be borne by the party that is best placed to Off balance sheet
(e.g. latent defects risks that arise after the D&C contractor’s liability period manage it, which should ensure it is managed in the most efficient manner. The debt finance raised to build PPP infrastructure assets is off balance sheet
has expired); and therefore reduces the level of government spending and allows the
Cost certainty
• the risk of a subcontractor to the SPV becoming insolvent; government to spread the cost of the asset across multiple budgetary years
Given that the private sector bears the risk of cost overruns, the government
• the risk of an upstream change of control occurring in respect of an equity and invest in additional/different capital projects over that time.
has certainty over the construction costs and, subject to benchmarking/
investor in breach of the PPP contract;
market testing, through-life costs of the asset. While this cost may not
• the risk of the SPV being liable to a subcontractor (or a third party) for an Community benefits
be lower than the government could secure outside of a PPP model, the
amount in excess of what the SPV can recover from the government – for The introduction of MIM and HUB models, as well as some of the themes
government is mitigating its risks of supply chain issues (e.g. insolvency or
example, because the SPV has independently breached the relevant sub- explored in the Cabinet Office Green Paper ‘Transforming publc procurement’
increased material costs) and other cost overruns (e.g. caused by delays).
contract (e.g. incorrectly rejected its design documentation) for reasons (December 2020)22, has seen a greater focus on community benefit. In MIM,
unrelated to a corresponding wrongful act of the government; Quality not only does the government benefit in the “upside” of the project by having
• the risk of the SPV being liable to the government (or a third party) for an By adopting an output-based specification, the government secures the an equity stake, a key evaluation criteria in awarding the project and something
amount in excess of what the SPV can recover from its contractors; and private sector’s expertise and innovation in building and managing the which is contractualized into the project agreement is the realization of
• the risk of a “gap” arising in the flow-down of rights or obligations via its infrastructure asset, and with it shifts delivery and quality/availability risks, community benefits, including (i) workforce initiatives, focusing on employment
subcontracts, which may be because a sub-contractor is unwilling to accept including the risk of rectifying latent defects. and training opportunities for disadvantaged people and specific target groups;
the risk under the PPP contract (e.g. ad hoc contractors are very unlikely to and (ii) supply chain initiatives, designed to maximize opportunities for smaller
Operational efficiency
accept a full flow-down of availability/deductions risk on a contract with a and more local businesses.
The maintenance and lifecycle obligations, and handback considerations,
comparatively small value).
require the private sector to ensure its assets are well maintained and
operated, which, in addition to having a fully managed service, can realize
For user-charge PPP projects, demand or revenue risk can also be added to 22
usable life benefits for the government. Cabinet Office, Transforming public procurement, December 2020 - https://assets.publishing.service.
this list. gov.uk/government/uploads/system/uploads/attachment_data/file/943946/Transforming_public_
procurement.pdf
46
The UK
WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS? The government has sought to address these risks, in part, through the
introduction of alternative models that provide additional benefits to the
From the public sector’s perspective, in light of the criticism that PPP public and publication of the Outsourcing Playbook, which is designed to
contracting involves additional costs, public and political appetite for improve the working relationship between the private, public and third sectors
PPP projects under the PFI/PF2 model was one of the biggest challenges and provides guidance on how government and private sector will continue
As 72 PFI contracts will be ending over the next seven years in England,
that eventually led to the model being withdrawn. This is in part due to driving forward innovation.
amounting to assets with an estimated capital value of GBP3.9 billion
the higher cost of financing already mentioned, but also because project
reverting to public sector ownership,23 the question of “what next?” for
lenders will want to ensure that future cost models are not underestimated
infrastructure projects in the UK is integral for not only new procurements
and there is sufficient buffer in the cash flows to provide for the risks that HOW FLEXIBLE ARE THE KEY MODELS?
(in respect of the model adopted and contracting/financing solution), but
are retained by the SPV (as noted above) as well as providing for adequate
how existing projects will continue to be operated, managed and financed
lifecycle maintenance. Given this, it is necessary for any procuring authority Given the length of time that PPP contracts are in place for (typically 25 to 30
in the future.
to satisfy itself that the higher costs associated with the PPP model are offset years), there is an inherent degree of inflexibility as it would not be feasible
by achieving the potential cost savings in the construction or operation of the to foresee, and provide for, all possible variations/eventualities in the project
At DLA Piper we are actively considering the handback possibilities with
project, or through the delivery of a qualitatively superior project (for which documents. Because of this, PPP contracts do have change mechanisms
both the public and the private sector, with a view to start a collaborative
it is challenging to provide direct/meaningful comparators in ‘traditionally’ built into the drafting to accommodate changes and provide a limited degree
dialogue between all stakeholders to uncover the benefits/areas for
procured projects). of flexibility that may not be present in stand-alone D&C or O&M contracts
improvement of the existing project arrangements measured against the
(with the latter typically operating on the assumption of a number of shorter,
wants/needs of the government for the asset’s future (not necessarily
In addition, across the UK, 328 authorities are responsible for PFI contracts. successive contracts procured by the relevant authority).
constrained by the current contractual arrangements).
These authorities are at various levels within government and are, therefore,
receiving different levels of support in procuring and, ultimately, managing These change mechanics are well placed to deal with day-to-day operational
these contracts on a day to day basis. This differential combined with changes to the running or management of simpler accommodation-based
budgetary constraints around resource allocation simply means that the PPP projects, as they can often be dealt with by the contract management
government can become overwhelmed by the contractual management of its team and fall under de minimis consent thresholds. Larger, more complex
PFI contracts and seek additional support from the private sector in areas that assets/variations that involve significant CAPEX or the introduction of new
weren’t envisaged at the time of procuring the project. risks (e.g. a new configuration or construction requirement) will require a
greater level of due diligence by all project parties (including the lenders) and
Maria Pereira
The insolvency of Carillion highlighted a real issue with bidders underpricing the respective professional advisors to implement the change, which will add
Partner and London Head of Projects
contracts and accepting a disproportionate risk allocation to secure a “win” time and cost to the process to reflect the additional scrutiny and expertise
T: +44 2071 537 113
in a competitive tender process. Operating at such low margins and taking on afforded to the change.
M: +44 7968 558 737
some potentially financially significant risks means that, should one of these
maria.pereira@dlapiper.com
low-probability, high-impact risks materialize, the contract (and the project) is
at risk of collapse or becomes undeliverable for the remainder of the term.
23
National Audit Office, Managing PFI assets and services as contracts end, June 5, 2020 - https://www.
nao.org.uk/report/managing-pfi-assets-and-services-as-contracts-end/
47
The US
The US
48
The US
AT FINANCIAL CLOSE SINCE 2010

BRIEFLY DESCRIBE THE PPP MARKET IN YOUR JURISDICTION “There is currently no uniform statutory
(REFERENCING THE LAST THREE YEARS, IF POSSIBLE): BY (A) VOLUME
definition of PPP (or P3 as it is known in Texas
California 9
16
OF TRANSACTIONS, (B) VALUE OF TRANSACTIONS, AND (C) SECTORS
OF INVESTMENT. this market) in the US, therefore the US Florida
Indiana 6
8
PPP procurement system is less formally Pennsylvania 6

There is currently no uniform statutory definition of PPP in the US, therefore, Colorado 5
the US PPP procurement system is less formally structured than other structured than other jurisdictions” Maryland
Michigan 4
5
jurisdictions. The scope of transactions that each US state may use to procure North Carolina 4
from, or partner with, the private sector for the delivery or operation of Virginia 4
infrastructure varies from state to state; some states operate at the state Georgia 3
New Jersey 3
level, using a procurement agency, while other states procure PPPs at local The US has recently vaulted itself to number one in the world by deal value for Connecticut 2
jurisdictional levels. Given this, multiple procurement agencies can exist in a greenfield PPPs. Ten deals reached financial close by 1H20 valued at USD10.03 District of Columbia 2
single state – and the laws can vary from state to state – which makes it more billion, including most notably the John F. Kennedy (JFK) Airport Terminal One Kentucky 2
Maine 2
challenging for project participants to use standardized approaches and Development (USD7.3 billion) and the University of Iowa Utility System project
New York 2
documents. In some cases, some infrastructure-related procurement laws (USD1.5 billion). Many state legislatures have taken steps to make PPPs more Arizona 1
have not permitted the typical forms of contracts used in PPPs, requiring, for palatable for stakeholders. Thus, the number of US projects adopting a PPP Delaware 1
Idaho 1
example, the separation of the procurement of the design and construction structure has increased, from 7% of closed greenfield deals in 2017 using PPP
Illinois 1
elements of a project. Most notably, this has been the case in the state of New to 8.7% of greenfield deals using PPP in 2019. In 2020, this percentage has Iowa 1
York, but policies towards design-build procurement have changed in recent increased to 11.5% as of 1H20. Kansas 1
years. Some states, such as Florida, have adopted specific PPP statutes. Some Louisiana 1
Massachusetts 1
authors trace back the development of the modern form of PPP to the power Deal activity for PPP projects over the last three years is below. Based on Missouri 1
purchase agreements developed in the US during the 1980s, which provided data from Inframation, activity for PPPs has increased in 2020, as previously Nebraska 1
for a two-component compensation system: a capacity availability payment and indicated, despite COVID-19: ten greenfield PPP deals reached financial close Nevada 1
New Jersey,New York 1
an actual usage payment. during the first half of 2020 compared to only seven in 1H18 and eight in 1H19.
Ohio 1
Oklahoma 1
Oregon 1
Puerto Rico 1
South Carolina 1
Virginia,District of Columbia 1
Washington 1
State | Deal count

Source: Inframation
49
The US
WHEN WERE PPPS FIRST IMPLEMENTED IN SIGNIFICANT NUMBERS IN On the Federal level, President Donald Trump’s USD1 trillion infrastructure plan
“The public benefits from the creativity and
YOUR JURISDICTION? did not materialize during his term. Although the House passed a USD1.5 trillion
infrastructure bill in July 2020, President Trump opposed the plan. The Senate, lack of bureaucracy afforded by the private
The market for PPP transportation projects began to develop in the 1990s likewise, passed a bill in July called “American Infrastructure Bonds” to improve upon
sector while avoiding much of the risk.”
with the SR-91, Dulles Greenway and Camino Colombia projects. However, the model of “Build America Bonds (BABs)” that were issued after the 2008 financial
when these projects ran into financial difficulty, the market for this kind of PPP crisis to attract more investment in public infrastructure, but nothing has occurred
project froze for several years. It was only in the mid to late 2000s that the since the bill was introduced. Democratic President Elect Joe Biden’s platform BRIEFLY DESCRIBE THE PPP MODELS AVAILABLE IN YOUR
transportation PPP market in the US began gaining new momentum. However, includes USD2 trillion to upgrade US infrastructure, but PPPs are not a material JURISDICTION, AND WHICH ARE MOST COMMONLY USED FOR (A)
many PPP projects at the municipal level had existed long before that, mainly in part of the plan. Thus, to date, the US still does not have a national, cohesive ECONOMIC INFRASTRUCTURE AND (B) SOCIAL INFRASTRUCTURE
the water and wastewater sectors. Correctional services companies have also strategy for PPP infrastructure. (THE “KEY MODELS”). PLEASE INCLUDE CONTRACTING STRUCTURES
built prisons and offered their services to all levels of government for several DIAGRAMS WHERE POSSIBLE.
years. Social infrastructure projects such as court houses, educational facilities
PPP PIPELINE
and convention centers are more recent. The PPP market in the US is behind
many European markets and Canada, although toll roads and rail projects have The most common model is the Design-Build-Finance-Operate and Maintain
Delivery Model (Deal count)
garnered investor interest. (DBFOM) model. The use of availability payments is preferred by investors over
DBF (5) mechanisms that shift the revenue risk to the private sector. In addition, we believe
WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR DBFM (4) “best practices” include milestone payments during the construction phase. This is
JURISDICTION? VERY BRIEFLY, WHY IS THAT? the model that shifts the greatest amount of risk to the private sector.
DBFO (6)
DBFOM (48)
Notwithstanding some high-profile defaults and no-bid situations, PPPs are The Design-Build-Finance (DBF) approach involves the public sector retaining the
501c3 (12)
generally viewed favorably in the US and have been instrumental in getting some O&M risks and responsibilities.
key projects operational. The market recognizes the ability of state and local DBFOM/501c3 (19)
governments to shift certain risks (design, construction, maintenance and cost of Other* (64) The Design-Build (DB) model transfers the design and construction risks to
materials, supplies and labor) to the private sector while allowing ownership to (*other includes: BF, BFM, BFOM, N/A, DBF with the private sector while allocating the O&M and financing responsibilities with
501c3, DBFM with 501c3)
remain with the public. As a general rule, in addition to the risk transfer benefit, the the public.
public gets price and scheduling certainty, more innovative and efficient design
Source: Inframation
and construction, a higher standard of maintenance and freed up bond capacity
for other projects. A big issue is who should accept the risk of ridership, volume,
use, and the like. The markets generally prefer an availability payments approach.
Conceptually, the PPP model allows for projects to be brought to fruition more
expeditiously and at a lower cost to taxpayers, which are particularly important at
a time when COVID-19 has stretched the budgets of many public sector entities.
50
The US
EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS IN NAME THE KEY BENEFITS TO YOUR GOVERNMENT / LOCAL Risk must be allocated to the party in the best position to mitigate, manage
THE KEY MODELS. AUTHORITIES OF ADOPTING THE KEY MODELS. ARE COMMUNITY or price it and should be manageable or, history shows, the private sector will
BENEFITS FACTORED IN? refuse to participate.
Ultimately, risks should be allocated to the party in the best position to mitigate,
manage or price that risk. This is a significant factor in the success of PPPs The primary benefit is the transfer of key risks (design, construction, cost of HOW FLEXIBLE ARE THE KEY MODELS?
globally. Inexperienced or overaggressive advisors can often determine the supplies / material / labor) to the private sector while obtaining the efficiencies
successful outcome of a PPP project in the US. of the private sector which should result in the project being completed At the moment, the models are not particularly flexible. The New Biden
on an expedited basis. The public benefits from the creativity and lack of Administration focus on infrastructure will be a part of the next phase of
• Managing the procurement process. Investors must be prepared to bureaucracy afforded by the private sector while avoiding much of the risk. economic stimulus. At the moment, however, largely because of the political
efficiently and effectively manage the DBFOM process to deal with the If handback provisions are appropriately addressed, the public receives repercussions and the reputational risk to advisors, PPP deals tend to be based
inevitable contingencies that will arise. the benefit of the project being returned to the public in a well maintained on prior project agreements. All too often, we have seen parties simply copy,
• Construction delays and defects. This risk is appropriately borne by the condition with years of useful life remaining. In short, the public receives a paste, and take precedent from one project to the next without understanding
private sector. The same goes for the interface risk among the private sector better, value engineered project, on an expedited basis and at a lower overall and reflecting on the inner workings of the deal and the objectives to be
parties. If there is a problem, the public does not care if it arose from poor cost to the taxpayer. In addition to the benefits listed, additional community attained. That said, because of the differences in enabling legislation among the
design, faulty construction, bad operation or improper maintenance. That is benefits should be considered. Local job creation is often touted as a benefit 50 states, a saying in the industry in the US is “If you have done one PPP deal...
for the private sector team members to address among themselves. and virtually every PPP requires the engagement of minority and women- then you have done one PPP deal.” Particularly in light of COVID-19, we expect
• Handback requirements. Being able to fulfill the handback requirements. owned businesses as well as disadvantaged businesses. Transit oriented the public sector will increasingly be expected to assume the use / volume /
Properly value the long-term repair / replacement of capital components of development projects often increase the tax base. ridership / revenue risk.
the asset.
• The political risk. It is not unusual to see an otherwise viable PPP deal fail
due to a lack of or change in political leadership, sometimes after hundreds WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?
of thousands of dollars have been invested with no method to recoup
such funds. The number one challenge in PPP in the US is the political risk. All too often,
• The cost of financing. Most deals involve a mix of debt and equity. It is not projects fail because there is not a strong project champion or zealous
unusual for a private sector party to be involved at all levels of a transaction, advocate on the government side. Elections have consequences and more
for example (i) provider of equity; (ii) provider of a portion of the debt; (iii) the than one PPP has failed based on a change of elected officials. Florida’s Maxine Hicks
sponsor; and (iv) O&M provider. experience with high speed rail is but one example, as well as the recent Partner
• Bankruptcy/insolvency. The bankruptcy/insolvency risk of a key member of Honolulu Rail Transit Project (HRTP) – the last two segments of which were T: +1 404 736 7809
the private sector team or vendor. proposed to be built based on a PPP model. The fate of the HRTP project via maxine.hicks@dlapiper.com
a PPP model was influenced by internal politics. In addition, we have seen a
number of no-bid scenarios, based on what the private sector has viewed as
an unfair and unrealistic risk-shift by the public sector. The private sector has
viewed certain projects as being unbankable and has refused to bid.
51
Glossary
Glossary
Where concepts or models are common to a number of the jurisdictions this

report examines, we have set out a summary of that concept/model below.
D&C design and construction
DBF design, build and finance
DBFM design, build, finance and maintain
DBFO design, build, finance and operate
DBFOM design, build, finance, operate and maintain

or DBFM(O)
DBM design, build and maintain
O&M operation and maintenance
SPV special purpose vehicle
52
DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com.
This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not
intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions
taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not
guarantee a similar outcome. Copyright © 2021 DLA Piper. All rights reserved. MAR21 DLA.PIP.1968
www.dlapiper.com

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Public-private partnerships for infrastructure investment:

5 Public-private partnerships for infrastructure investment:

DLA Piper Global Infrastructure

Public-private partnerships for infrastructure investment: a global perspective

• Projects run to time and budget: there is a recognition that, on the

These perspectives are not merely additional layers of complexity and

Deal value (USDbn)

Deal value (USDbn)

CLOSED PPPs BY DEAL COUNT PIPELINE PPPs BY DEAL COUNT

More information on this issue can be found in DLA Piper’s,

WOULD YOU SAY PPPS ARE GENERALLY VIEWED FAVORABLY IN YOUR

The use of PPPs in infrastructure projects is generally viewed very favorably

high-value, high-profile social, transportation, water and wastewater and

for private-sector “windfalls” at the expense of taxpayers, on the whole the

of long-term debt are bonds or notes, either broadly marketed issuances

HOW FLEXIBLE ARE THE KEY MODELS?

User Fees Services

RISK PRIVATE PUBLIC Regulatory risks:

WHAT ARE THE BIGGEST CHALLENGES WITH THE KEY MODELS?

• Higher costs of structuring, procuring and development.

HOW FLEXIBLE ARE THE KEY MODELS?

Although leaning towards transportation, and especially road project

PPP in relation to development practice (Gebiedsontwikkeling)

OF INVESTMENT. Transaction Launch 2

Using private finance adds additional cost

“Finally, it is important to note that Saudi

Government shareholdings EXPLAIN THE RISKS COMMONLY TAKEN BY EQUITY INVESTORS

HOW FLEXIBLE ARE THE KEY MODELS?

PPP projects in the GCC tend to follow a procurement method in which

Healthcare is an example of a corporatization. Existing healthcare assets

Social Infrastructure (1.08)

AT FINANCIAL CLOSE SINCE 2010

PPP procurement system is less formally Pennsylvania 6

State | Deal count

Where concepts or models are common to a number of the jurisdictions this

D&C design and construction

DBF design, build and finance

DBFM design, build, finance and maintain

DBFO design, build, finance and operate

DBFOM design, build, finance, operate and maintain

DBM design, build and maintain

O&M operation and maintenance

SPV special purpose vehicle

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