PPP contracts bundle the provision of maintenance and other operation phase services into the same contract as the design and construction services. The SPV is required to deliver maintenance and other services to the specified standard throughout the term of the contract.
The revenues received by the SPV in the form of user charges or service payments must therefore cover the cost of the maintenance and other services, in addition to the capital expenditure and financing costs. If the SPV fails to allow for the cost of performing necessary maintenance and renewals, it will jeopardise its revenue stream and, potentially, risk termination of the PPP contract. Accordingly, an appropriate allowance is made. For a typical United Kingdom (UK) school PPP, about 30 per cent of the service payment is for the cost of maintenance and other operation phase services. The percentage is higher for hospital PPPs, especially if the SPV provides the clinical health services.
When infrastructure is built under a traditional short-term construction contract, the future funding required to operate and maintain the infrastructure is not always provided for. When budget cuts are imposed on government agencies, facilities often end up being maintained according to the available budget, rather than to specified standards. The PPP model forces the investors to plan and budget for necessary maintenance upfront.