{"id":8042,"date":"2023-08-07T07:42:49","date_gmt":"2023-08-07T04:12:49","guid":{"rendered":"https:\/\/theoneiranian.com\/glossary\/bot-contract\/"},"modified":"2025-03-05T09:42:15","modified_gmt":"2025-03-05T06:12:15","slug":"bot-contract","status":"publish","type":"glossary","link":"https:\/\/theoneiranian.com\/en\/glossary\/bot-contract\/","title":{"rendered":"BOT Contract"},"content":{"rendered":"\n

Build, operate, transfer) BOT):One of the methods of implementing construction projects is the build, operate, transfer (BOT) approach. This approach is a comprehensive method for designing, constructing, operating, and managing the project’s profits, which is carried out with the help of domestic and foreign private sector investors and tries to bring the lowest possible cost to the employer. This method is one of the accepted methods for private sector participation in infrastructure development projects worldwide. Various governments use this method as a convenient way to invest and quickly build infrastructure projects that are in great need of the society. The term BOT was first used in the 1980s when the then Turkish government put out to tender the concession of several power plants. In this method, the employer grants the right to construct and operate the project for a certain period of time to a company or consortium consisting of several private companies under the title of “project company”, and the project is transferred to the employer after a certain period of time and after the necessary income is earned.This method, like other methods of implementing large projects, begins with the preparation of tender documents and after the initial study stage by the employer. Then, private sector investors participate in the tender by reviewing the tender documents and ensuring that the feasibility results are positive by submitting a proposal. In the next stage, after determining the winner of the tender and conducting initial negotiations, a limited liability company is established as the “project company” by the selected investors.This company is considered a BOT concessionaire. The trustees’ capital for establishing the company is usually 20 to 30 percent of the investment required to implement the project. The remaining capital required is provided through financial agreements with reputable banks and financial institutions. One of the most important duties of the project company is to conclude the necessary agreements with the employer, the executive contractor, the operating company and financial institutions. Usually, the company signs an agreement with the employer’s agents to sell the product on a delivery basis with take or pay terms. In this case, if the buyer of the product does not need the manufactured product at times, It is required to pay about 80 percent of the price of the manufactured product. In this method, the employer does not guarantee the repayment of any loan from investors or project trustees, thus reducing the pressure of borrowing. In addition, the risks related to construction and new technologies are also transferred to the counterparty (private sector). The basic features of a BOT contract can be summarized as follows:\u2022 The concession to build an economic project is granted by the employer to the project company.\u2022 The privilege of operating the constructed economic projects is transferred by the employer to the project company for a certain period of time.\u2022 The project company is responsible for financing the project.\u2022 The project company is responsible for designing, supplying the goods, machinery, and materials necessary for the construction and commissioning of the project.\u2022 The project company is responsible for operating the project within the stipulated period.\u2022 The project company recovers its principal, accrued interest, and profits through the sale of goods and services resulting from the operation of the project.\u2022 After the specified period of operation has elapsed, the project is transferred to the employer free of charge.\u2022 The project company is obliged to keep the project usable during operation and until delivery. If necessary, the project company must carry out the necessary repairs or modifications at its own expense, so that the project is technically sound and usable at the time of delivery. <\/p>\n\n

Prerequisites for BOT ContractsThree factors can be considered as prerequisites for entering into BOT contracts. First, the defined project must have economic justification; in such a way that its practical and tangible need is felt in the country.The second factor is the sufficient effort and determination of the government and the public sector to sign the contract and issue the necessary permits, as well as to ensure the security of investment in this project. The third and final factor for concluding construction, operation and transfer contracts is the presence of investors and financial sponsors who will assume the various risks of the project until the exploitation stage. <\/p>\n\n

The process of implementing the BOT method<\/p>\n\n

1. IdentificationAs with other projects, project identification should be carried out as the first step. In this stage, preliminary feasibility studies including economic, financial and technical studies are carried out considering the economic and political situation and the requirements and benefits of implementing the project using the BOT method are determined. <\/p>\n\n

2. Tender\/NegotiationNegotiationIf the project can be awarded directly to a qualified investor, negotiations will be conducted, a memorandum of understanding will be signed between the parties, and a product purchase agreement will be concluded..<\/p>\n\n

TenderThe following sub-steps are implemented in the tendering procedure:Employer’s preparation for the tenderInvestors’ preparation for the tenderSelection of the tender winner<\/p>\n\n

3. DevelopmentIn this stage, after the project agreement is signed, an agreement is drawn up between the investors to form the structure of the project company and the shareholding for the realization of the project is determined. Financing agreements, contracts with contractors and acquisition of obligations and other related matters are also completed. <\/p>\n\n

4. ImplementationIn this stage, construction, installation and commissioning of the project are completed, and if the tests, training, preparation of operating instructions and obtaining permits are successful, the next phase begins.<\/p>\n\n

5. Operation and MaintenanceThis phase is considered the longest period of the project. After the project is launched, the employer monitors the operation by conducting periodic inspections and receiving reports, and pays due attention and care to the transfer of technology from the project company (or contractor), training the workforce, public safety, and maintaining environmental conditions. <\/p>\n\n

6. HandoverThe BOT project ends with the handover of the project to the employer. The project company is required to maintain the project and its facilities in a proper manner until the handover date so that the employer can continue to operate the project. At this stage, the issuance of warranties for repairs and proper functioning of the equipment and facilities should be considered. <\/p>\n\n

The main risks of BOT infrastructure projects related to the private sector are:Feasibility, design and construction phase:\u2022 Risk of cancellation or change of scale\u2022 Risk related to obtaining government permits and complying with environmental regulations\u2022 Risk of confrontation with local communities (delay in acquisition, etc.)\u2022 Wrong financial assumptionsOperation phase:\u2022 Risk of expropriation and revocation of operating permits\u2022 Changes in laws and regulations (especially in the area of \u200b\u200bpricing, road quality, etc.)\u2022 Management changes and policy changes<\/p>\n\n

The BOT method has a short history and has been in operation for more than two decades. It can be considered as one of the new and fruitful methods of privatization that brings about the active participation of the private sector in the construction and development of infrastructure projects. Among the advantages of this method is the reduction of numerous problems faced by the government in issues such as foreign borrowing, project risk acceptance, low efficiency of projects, etc. Transferring technology to the country and developing infrastructure are considered to be the main characteristics of the BOT method. Ultimately, it can be said that a proper understanding of this method by the government and state-owned companies and its use in appropriate conditions is the main prerequisite for success. In Iran, laws such as the Law on the Encouragement and Support of Foreign Investment have covered BOT contracts and provided the necessary legal framework for benefiting from these contracts. <\/p>\n\n

Other investment methods with the concept of transfer include the following:<\/p>\n\n

Build-Operate-Own (BOO): B.O.O contracts are a type of international contract in which the “project company” undertakes to build, own, operate and maintain the project in perpetuity and collects the project’s rents, expenses and income.The investor in a B.O.O. is responsible for the construction and operation of the project and has no obligation to deliver the constructed project to the government or the public sector. In fact, the ownership of these projects is in the hands of the investor and there is no restriction on the time of operation of the project, and the contract does not have the obligation to transfer the project to the host government after the end of the concession.Such projects arise in countries where:A: They are less sensitive to the transfer of concessions to foreign investors. B: They have developed clear policies to leverage private sector investment. A: They have already gained sufficient experience in the (B.O.T) method. <\/p>\n\n

Build-Own-Operate-Transfer (BOOT): All assumptions are similar to B.O.T., but the term “Own” is used in this contract because the “project company” owns the physical assets in the project during the contract period and then transfers them to the government.Full ownership of the project during the exploitation period provides the investor with the possibility of transferring ownership to a third party, the possibility of succession, the creation and regulation of price increase tariffs, etc. However, the obligation to transfer the project to the employer at the end of the concession period is an integral part of the contract.<\/p>\n\n

Build- Own-Operate-Sell) BOOS):If in BOOT build, own, and operate projects, the “project company” undertakes to sell the project to the employer after a certain period of time in exchange for a payment, the term Build, Own, Operate (BOOS) is used.<\/p>\n\n

(Build-Lease-Transfer) BLT: If the “project company” acquires the project after construction and leases it to the government or private sector for a certain period of time in exchange for a fee, and after the period has expired, it transfers it to the employer free of charge, the construction is called lease-on-leaseback (BLT).The difference between this method and the non-participatory “lease” method is that the lease method is not participatory and does not involve construction operations, and the “project company” does not use its own resources to construct or build the project. However, in the BLT method, all or part of the project is built by (and with) the “project company’s resources.”<\/p>\n\n

Refurbish-Operate-Transfer (ROT):If a project or facility that currently exists is handed over to the private sector to be refurbished by the private sector and in return operated by the private sector for a period of time and then transferred to the employer, the term Refurbish-Operate-Transfer (ROT) is used.<\/p>\n\n

Modernize-Operate-Transfer (MOT): The term Modernize-Operate-Transfer (MOT) is used if an existing infrastructure project is handed over to the private sector to transform it into a modern project and in return operate it for a period of time and then transfer it to the employer free of charge.<\/p>\n\n

Modernize-Operate-Transfer (MOT): The term Modernize-Operate-Transfer (MOT) is used if an existing infrastructure project is handed over to the private sector to transform it into a modern project and in return operate it for a period of time and then transfer it to the employer free of charge.<\/p>\n","protected":false},"featured_media":0,"template":"","categories":[],"tags":[],"class_list":["post-8042","glossary","type-glossary","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/glossary\/8042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/types\/glossary"}],"wp:attachment":[{"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/media?parent=8042"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/categories?post=8042"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/theoneiranian.com\/en\/wp-json\/wp\/v2\/tags?post=8042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}