2.1.7 A DBFO project usually has the following characteristics:
a) Long Term contract. PPP contracts tend to be long-term, possibly up to 30 years, depending on the nature of the facilities and services to be delivered.
b) Outcome/Output Specifications. Public service requirements would normally be framed as output specifications, instead of precise input specifications and design, to give more room to the private sector to provide innovative solutions to meet the public sector's requirements.
c) Special Purpose Vehicle (SPV). The private provider is usually a consortium formed by multiple companies.
d) Sharing of Responsibilities. Responsibilities and risks for activities that can be better controlled and managed by the private partner are transferred to the SPV.
e) Performance based payment mechanism. The public sector pays only when services are delivered (e.g. the private sector is not paid during the construction phase). These service payments vary depending on whether the services provided meet specified performance standards. If the PPP provider consistently fails to provide satisfactory services, the public agency concerned can terminate the PPP contract.
f) Flexible contract with mechanisms for variations. The DBFO contract entered into at the outset recognises that there will be a need for changes over the 15-30 year life of the contract. The public sector has a right to change, within limits, some aspects of the building or service provision, subject to agreement with the DBFO contractor on cost. Usually, there is also a binding dispute resolution procedure in the contract.
a) Private Financing comprising of equity and debt. The SPV is owned by one or more equity investors, but the debt providers provide the majority (typically 80% or 90%) of the financing.
b) Publicly funded. DBFO is neither a source of free money nor a means of implementing ill-conceived, unaffordable projects. While the private sector provides the capital funding for the project, this is ultimately recovered from members of the public (as user charges/fees) and/or the public agency (as a stream of payments to the provider).
2.1.8 The following sections elaborate on the contractual and financial characteristics highlighted above.