While PPP contracts can generally be categorized using the parameters above, there is no consistent, international standard for defining PPPs and describing these different types of contract. This varying terminology can create confusion when comparing international experience-hence this Reference Guide consistently uses 'PPP' to describe the wide range of contract types, irrespective of the terminology in the particular country or jurisdiction.
Some governments define 'PPP' in their PPP policies or laws to mean a specific range of contract types, as described in Section 2.1: PPP Policy. These definitions may incorporate all or some subset of the contract types described above. For example, Brazilian law distinguishes between user-pays and government-pays projects. PPP projects that are fully paid for by charging users are governed by the 'Concessions Law', while other PPP projects are governed by the 'PPP Law'-accordingly, only the latter are commonly referred to as 'PPP'. A similar distinction is made in France, where the term 'PPP' is restricted to government-pays contracts implemented under the 'PPP Law'-again, user-pays contracts are typically referred to as concessions.
At the same time, other terms can be used as synonyms for PPP in general, or to refer to particular types of PPP-either in law, or in common usage. 'Concession' is sometimes used to refer to specific types of PPP (as is the case in Brazil, as noted above, where a 'concession' is a fully user-pays PPP), while in other cases it is simply a synonym for PPP (for example, in Chile all PPPs are called 'concessions', and implemented under the country's 'concessions law'). In the United Kingdom, Government-pays PPPs for new assets are known as 'Private Finance Initiative' or PFI projects; while PPPs for existing assets (such as hospitals, or railways) are sometimes known as 'franchises'. It is not uncommon to hear the process of entering into a PPP referred to as 'privatization', or for the resulting assets to be termed 'private'-although this reference guide makes a distinction between PPP and privatization, as described further in the following section.
Different nomenclature can also be used to distinguish different PPP contract structures. In some cases, PPPs are described by the functions transferred to the private party. For example, a 'Design-Build-Finance-Operate-Maintain', or DBFOM contract would allocate all those functions to the private party. Other nomenclatures such as 'Build-Operate-Transfer' focus rather on the legal ownership and control of the assets.
Table 1.1: PPP Nomenclature explains common PPP nomenclature, and how each relates to the description by asset type, functions, and payment mechanisms described above. The following resources provide more information on PPP contract types and nomenclature:
• Delmon's paper on understanding options for PPPs in infrastructure [#59] provides the most detailed discussion. Delmon classifies PPPs by five factors, similar to the characteristics described above: (1) whether the PPP is a new or existing business or asset; (2) the responsibility of the private party for construction; (3) the level of private finance involved; (4) the nature of the project company's service delivery obligations (bulk supply or retail level); and (5) the source of revenue stream
• Yescombe chapter on 'What are Public-Private Partnerships' [#295], which also describes the range of PPP structures and how these are classified
• Farquharson et al chapter on 'Defining Public-Private Partnerships' [#95, pages 9-14], which focuses on how PPPs differ from privatization and management contracts; and describes user-fee and availability-based PPPs
• The World Bank explanatory notes on key topics in water sector regulation [#122, Note 4] describe common contract types for managing existing assets in the water sector: concession, lease or affermage, and management contracts
• The World Bank's PPP in Infrastructure Resource Center website describes a spectrum of PPP types based on the extent of private sector's participation. It is available at http://ppp.worldbank.org/
Section 3.3: Structuring PPP Projects also provides further guidance and links on PPP contract structures, and how governments can decide which to use for a particular project.
Table 1.1: PPP Nomenclature
Contract Nomenclature | Overview Description and Reference | Type of Asset | Functions Transferred | Payment Mechanism |
Design-Build-Finance-Operate-Maintain (DBFOM); Design-Build-Finance-Operate (DBFO); Design-Construct- Manage-Finance (DCMF) | Under this nomenclature, the range of PPP contract types is described by the functions transferred to the private sector. The 'maintain' function may be left out of the description (so instead of DBFOM, a contract transferring all those functions may simply be described as DBFO, with responsibility for maintenance implied as part of operations). An alternative description along similar lines is Design-Construct-Manage-Finance (DCMF), which is equivalent to a DBFOM contract | New infrastructure | As captured by contract name | Can be either government or user pays |
Operations and Maintenance (O&M) | O&M contracts for existing assets may come under the definition of PPP where these are performance-based, and long-term (sometimes also called performance-based maintenance contracts) | Existing infrastructure | Operations and maintenance | Government pays |
Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Transfer-Operate (BTO), | This approach to describing PPPs for new assets captures legal ownership and control of the project assets. Under a BOT project, the private company owns the project assets until they are transferred at the end of the contract. BOOT is often used interchangeably with BOT, as Yescombe [#295] describes. In contrast, a Build-Transfer Operate (BTO) contract, asset ownership is transferred once construction is complete. As Delmon [#58, pages 20-21] describes, ownership rights mainly affect how handover of assets is managed at the end of the contract | New infrastructure | Typically, design, build, finance, maintain, and some or all operations Under some definitions, BOT or BTO may not include private finance, whereas BOOT always includes private finance | Can be either government or user pays |
Rehabilitate-Operate-Transfer (ROT) | In either of the naming conventions described above, 'Rehabilitate' may take the place of 'Build' where the private party is responsible for rehabilitating, upgrading, or extending existing assets | Existing infrastructure | As above, but "rehabilitate" instead of "build" | As above |
Concession | 'Concession' is used for a range of types of contract, as described in Delmon [#59, Box 1 on page 9]. In some jurisdictions, concession may imply a specific type of contract; while in others it is used more widely. In the PPP context, a concession is mostly used to describe a 'user-pays' PPP. For example, in Brazil, the 'Concession Law' applies only to user-pays contracts; a distinct 'PPP Law' regulates contracts that require some payment from government. On the other hand, 'concession' is sometimes used as a catch-all term to describe a wide range of PPP types-for example, all recent PPPs in Chile have been implemented under the 'Concession Law', including fully government-pays contracts. | New or existing infrastructure | Design, rehabilitate, extend or build, finance, maintain, and operate-typically providing services to users | Usually user pays-in some countries, depending on the financial viability of the concession, the private party might pay a fee to government, or might receive a subsidy |
Lease or affermage | A lease or affermage contract is similar to a concession, but with the government typically remaining responsible for capital expenditures. 'Affermage' in particular may have a specific meaning in some jurisdictions. The World Bank's explanatory notes on water regulation [#122, pages 36-42] describe lease contracts, as well as concessions. Such contracts may or may not come under the definition of PPP, depending on the duration of the contract. | Existing | Maintain and operate, providing services to users | User pays- private party typically remits part of user fees to government, to cover capital expenditures |
Franchise | 'Franchise' is sometimes used to describe an arrangement similar to either a concession or a lease or affermage contract, as described in Yescombe [#295]. | Existing or new | May include design, build, and finance; or may be limited to maintaining and operating an asset | May be user or government pays |
Private Finance Initiative (PFI) | The United Kingdom was one of the first countries to introduce the PPP concept, under the term 'Private Finance Initiative'. 'PFI' is typically used to describe PPP as a way to finance, build and manage new infrastructure | New | Design, build, finance, maintain- may include some operations, but often not providing services directly to users | Government pays |