ARE THERE OPTIONS TO PPP OR PFI PROCUREMENT MODELS?
||Anderson, Nicholas; Juhani Kiiras
||ARE THERE OPTIONS TO PPP OR PFI PROCUREMENT MODELS?
||Book of Abstracts: 13th Annual European Real Estate Society Conference in Weimar, Germany
||Life-Cycle Contracts (LCC) commonly called PPP or PFI are typically relied upon for the financing and the execution of large infrastructure or building investments. A scope of LCC includes financing, design and engineering, construction, and operations and maintenance over the extended contract period, i.e. 20 or 30 years. The income of a LCC consists of payments based on the use of the constructed object in question. Under a LCC, the preparation of the tender documents, the engineering and the estimating of the bids, and the final selection of the contractor take long time and the process involves several problems. An investor remains tied to the contract terms, i.e. there is little flexibility to respond changes in the use of object or technology during a long contract period. The financing in LCC models are expensive and the model is like hire purchase. Thus, investors should have a possibility to choose from among several alternative procurement strategies. In this paper, the Life-Cycle Management model (LCM) is introduced as an alternative for LC contracts. Via this LCM, a public owner (investor) will get long-term financing with lower interest rate and all the savings to be gained through the competitive subcontracting of all project service or work packages and maintenance task packages. All subcontracts are procured from competitive markets. In addition, an investment process can be started earlier than in the case of LCC. However, the downside of the LCMS model involves a fact that an owner will carry all the project risks over its life cycle. In this paper are presented net present value calculations about some case projects procured by LCC or LCM models.
||infrastructure investments; life-cycle contracts; project financing; PPP; PFI; management contract
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