International Construction Law Review
FIDIC CONDITIONS OF CONTRACT FOR EPC TURNKEY PROJECTS—THE SILVER BOOK PROBLEMS IN STORE?
NICHOLAS D J HENCHIE
LL.B (Hons), Solicitor, Rowe & Maw, London, UK
INTRODUCTION
The growth in the use of private finance to fund major public infrastructure projects throughout the world continues unabated. The traditional role of governments in providing public infrastructure projects has been supplemented significantly by the use of private finance. This effectively transfers the responsibility for certain services from the public to the private sector.
In particular, the BOT (Build—Operate—Transfer) transaction has become common world-wide. Using the simple example of a bridge, under this type of arangement a company, often a special purpose vehicle (SPV) formed by private sponsors, established solely for that project and with no real assets, is granted a concession from the public authority or host government to own and operate the bridge, for a set period of time. The SPV will arrange the finance (the majority of it by way of loan(s)) and employ a contractor to design and build the bridge. The SPV will own and operate the bridge for a set period, raising money to repay the debt (and hopefully making some profit) by way of tolls. At the end of the period, the bridge is transferred back to the public authority or host government.
The recent growth of such projects has taken place in both the developed and developing world. For example, the private finance initiative has been pioneered in the United Kingdom under successive governments, allowing them to avoid substantial capital expenditure on projects which they would traditionally finance. Meanwhile, in developing countries, traditionally averse to foreign capital, but with a lack of public and private domestic finance, attitudes have been forced to change in recent years, in recognition that without domestic and foreign private investment, vital infrastructure projects would simply never get off the ground.
It is not surprising that the concept of BOT is appealing to governments around the world. Arguably, the single most important reason for the growth in private finance initiatives is the consequent reduction in government expenditure on infrastructure needs. Other advantages come hand in hand: private investors take most of the commercial risks, they raise the finance thus enabling the project to proceed, and the quality of the product can be higher
[2001
The International Construction Law Review
42