Build-Operate-Transfer (BOT) Contract

A build-operate-transfer (BOT) contract is a form of public-private collaboration in which a private firm finances, designs, builds, and operates an infrastructure project for a fixed concession period and then transfers ownership to the public authority. BOTs are commonly used for large greenfield projects—such as highways, power plants, and transit systems—where governments seek to leverage private capital and expertise.

Key takeaways

• BOT assigns design, construction, financing, and operation to a private concessionaire for a defined period (often 20–30 years).
• The concessionaire aims to recover investment and earn returns from project revenues during the operating phase.
• At concession end the facility is transferred to the public entity.
• Variants include BOOT, BLT, DBOT and others that change ownership, leasing, or design responsibilities.
• BOTs can enable projects governments cannot afford upfront, but they carry demand, construction, financial, and political risks.

How BOT contracts work

1. A public authority grants a concession to a private company (often a special-purpose vehicle set up for the project).
2. The private party finances, builds, and commissions the facility.
3. During the concession period the private party operates the asset and collects revenues—either directly from users or via an offtaker agreement (for example, a power purchase agreement with a government utility).
4. The concessionaire seeks to recoup costs and earn a return over the contract term.
5. At the end of the term the asset is transferred to the public authority, typically at no or nominal cost.

BOT projects are usually large-scale and long-term. Revenues during the operating phase often depend on a single counterparty or offtaker; contracts commonly include minimum payment or tariff provisions to improve revenue predictability.

Common variations

• Build-Own-Operate-Transfer (BOOT): contractor owns the asset during the concession.
• Build-Lease-Transfer (BLT): government leases the asset from the contractor during the concession and operates it.
• Design-Build-Operate-Transfer (DBOT): contractor is also responsible for design in addition to construction and operation.

The BOT approach gained prominence in the late 1970s as developing countries faced constrained public budgets and international construction firms sought new markets.

Example: Bangkok Mass Transit System (BTS)

The Bangkok Skytrain was developed under a 30-year BOT concession. A private firm financed, designed, built, and ran the system in exchange for fare and advertising revenues. The concessionaire expected to recoup costs within about a decade, but ridership fell well below projections and the operator faced financial difficulties—illustrating the demand and revenue risks inherent in BOT projects.

Basic framework (three phases)

• Build — private party constructs the infrastructure.
• Operate — private party runs and maintains the facility to generate revenue and recover investment.
• Transfer — ownership and control revert to the public authority at the end of the concession.

Risks

BOT contracts can fail if projected revenues or demand do not materialize or if costs overrun. Key risk categories include:
* Demand risk — lower-than-expected usage reduces revenue.
* Construction risk — delays and cost overruns raise capital needs.
* Financial risk — interest rate, refinancing, and currency exposure can affect viability.
* Offtaker/counterparty risk — dependence on a single buyer (e.g., a state utility) can create payment or credit risk.
* Political and regulatory risk — changes in law, tariffs, or government policy can alter project economics.

Effective allocation of these risks between the public and private partners is critical to project success.

BOT vs. PPP

A public‑private partnership (PPP) is a broad term for various contractual arrangements where the private sector delivers public services or infrastructure. BOT is one specific PPP model that emphasizes private financing, operation during a fixed concession, and eventual transfer of ownership to the public sector.

Conclusion

BOT contracts can unlock projects that governments cannot finance or manage alone by shifting investment and operational responsibility to private specialists. When structured and priced appropriately—with realistic demand forecasts and well-allocated risks—they can deliver public infrastructure efficiently. However, large uncertainties and asymmetric risks mean BOTs require careful contract design, robust due diligence, and active management throughout the project life cycle.

Sources

• The World Bank — “The Build, Operate, and Transfer (‘BOT’) Approach to Infrastructure Projects in Developing Countries”
• United Nations ESCAP — “Traffic Demand Risk: The Case of Bangkok’s Skytrain (BTS)”