Historically, the underlying costs of funders due diligence and lack of economies of scale has represented a key obstacle to undertaking relatively small projects as DBFMs. Even with standardised project documentation, it is recognised that there is a minimum cost to executing a single transaction, where there will always be project specific issues to deal with. These minimum cost levels often rendered DBFM uneconomic for lower value projects.
It is however considered that the hub programme could obtain competitive finance and advisory input for smaller DBFM contracts through grouping them together.
In order to achieve this we understand that the market will require certainty in respect of the pipeline of deals to take an overall view on fee size.
Specifically:
• Senior Lender - Under the hub programme Senior Lenders will potentially have the ability to be working alongside the same PSDP on an identified stream of projects. This should allow a wider view on costs in the context of lower value individual deal size. The key to delivering savings is the development of consistent and standard template documentation by hubco at the outset.
• Senior Lender's Legal Advisors - The volume of documentation and activities which need to be reviewed, agreed and coordinated means that this is historically one of the most expensive elements of project due diligence. The hub Programme Delivery Office ("PDO") considers that there is scope to reduce the overall fee quantum by grouping projects together on the basis that:
○ There is a demonstrable pipeline of projects; and
○ There is a suite of well developed standard contract documents, thereby resulting in only project specific elements to require negotiation and agreement.
• Senior Lender's Technical Adviser - It is anticipated that Technical Advisers would be able to take an overall view on the input that will be required over a pipeline of projects and reduce their fees accordingly on a volume basis. It is clearly understood that such volume discounts will only be achievable on the basis of very similar (or identical) documents and approaches being followed by all projects within the group.
• Model Audit - A similar approach could be taken as with Technical Advisory appointments as set out above. In order to maximise the potential for efficiency savings emphasis will be placed upon hubco ensuring that the same basic model is used repeatedly (wherever possible) with consistent treatment applied to tax, accounting and ratio calculations and that a standard format of reporting is used; and
• Senior Lender's Financial and Insurance Advisers - A similar approach to that which could be taken with regard to Technical Advisory and Model Audit appointments.