PPP Milestone and Completion Payments: Bigger is not Always Better

Date of Commentary: February 3, 2010

PPP Milestone and Completion Payments: Bigger is not Always Better

Government funding during the construction phase (GFuDC) of a Public Private Partnership (PPP) project¹ usually takes one of two forms: either Milestone Payments paid upon the achievement of predetermined construction tasks and/or a Substantial Completion Payment. Since the onset of the global financial crisis, certain governments have been making larger GFuDC contributions in an effort to reduce leverage carried by projects, particularly in cases where arranging the necessary funding could prove difficult. DBRS has noted this trend and warns that even with stable gearing and debt service coverage ratios, the tendency towards larger amounts of GFuDC reduces the resilience of the project to stresses during the operating phase and could ultimately erode a project's credit profile.


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1 For the purposes of this comment, Public Private Partnership also encompasses those infrastructure projects delivered by way of Alternative Financing and Procurement (AFP) in the Province of Ontario.