International Construction Law Review
A CONTRACTOR’S VIEW OF BOT PROJECTS AND THE FIDIC SILVER BOOK
JEFFREY DELMON AND JOHN SCRIVEN1
Allen & Overy, London
INTRODUCTION
Build, Operate, Transfer (“BOT”) schemes involve the granting of a concession by an entity, often from the public sector (the “grantor”), to a special purpose company (the “project company”) to provide the finance for, build and operate infrastructure over a set period in exchange for compensation based on the performance of the infrastructure. The construction of the infrastructure is often financed by limited recourse debt (“project finance”) and is normally outsourced to a construction contractor (the “contractor”). Project finance lenders require risk to be allocated away from the project company, and will therefore want the contractor to bear a substantial portion of the construction risk related to the project. For this reason, construction contracts in a BOT structure are normally let on a turnkey or design-build basis.
The market for BOT projects is increasingly large and presents significant opportunities for contractors, but these contractors must agree to bear substantial construction risks in order to win tenders for construction works for limited recourse financed BOT projects. Contractors therefore need to consider the risks they will be asked to bear and how best to mitigate these risks. This article considers the risks which a contractor may be asked to bear in the context of a BOT project and analyses the Fédération Internationale des Ingénieurs-Conseils
(“FIDIC”) model form Conditions of Contract for EPC/ Turnkey Projects 1999 (the “Silver Book”) in relation to these risks and the extent to which this model form affects the interests of the contractor.
This article reviews risks encountered by contractors in BOT projects and analyses treatment of these risks in the Silver Book. Section A considers the characteristics of a BOT project, the importance to the lenders and the project company of the contractor bearing certain construction risks, and the use of the Silver Book in the context of a BOT project. Section B analyses various issues which will be important to the contractor, how those risks are normally allocated and the relevant provisions of the Silver Book, and in particular considers how the contractor may be able to limit the risk which it accepts. Whilst the Silver Book is intended specifically for BOT projects, since
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