Both BOT and BOOT models are important types of Public-Private Partnership (PPP) models of investment in which the private entities are offered incentivized financial terms and conditions to work and invest in the public sector projects for a certain period. These models offer a win-win situation for both the private and public entities to harvest the benefits of the partnership.
Let’s explore different aspects of BOOT and BOT contracts and also compare BOT BOOT models of development in this article.
What IS Build Operate Transfer (BOT) Model?
The BOT full form is Build-Operate-Transfer. According to the Gartner definition, a private organization goes into a contract with a public entity (mostly governments) to build, improve, and operate an IT service platform for a government for a certain concessional period and finally to transfer the infrastructure to the government after the completion of the concessional period is known as Build Operate Transfer model.
The main specifications of the BOT outsourcing model include:
- It is a public private partnership outsourcing model
- Government invests the bulk share of funding
- Project development and operations are the responsibility of a private entity
- After 20 to 30 years of operations, the infrastructure is handed over as a captive center to the government
The main advantages of the BOT model include:
- Transfer of technology to the public entity
- Better use of invested resources for government
- Attractive business opportunities to private companies
- Faster development of IT infrastructure
- Reduced upfront investment
- Efficient IT staffing outsourcing
- Private companies get concession for longer periods
Major risks involved for both parties include:
- Government investment vulnerable on equity grounds
- Development projects may suffer from the government’s investment delays
- Unseen adverse factors in a long period of operations may emerge
What Is a Build-Own-Operate-Transfer (BOOT) Model?
Build own operate and transfer is a comparatively new model of outsourcing IT projects. In this model of business, the government entities go into a contractual agreement with the technology specialist organizations, which are known as Special Project Vehicle (SPV) to invest in a public sector IT project to build, own, and operate through a dedicated offshore development center for a long concessional period to achieve their returns on investment. After the completion of the contractual period, the entire infrastructure is supposed to be transferred to the government. The Build Operate Transfer advantages disadvantages are listed below.
Major advantages of BOOT:
- Access to cutting-edge technology and expertise
- Effective use of public and private resources
- The great trade-off for both parties
- Development of basic infrastructure for developing countries
- Private investment with reduced risk factor
BOOT model disadvantages:
- A substantial risk for private investors in the public project
- Risk of government policies changes
- Governments have little control over the projects
- Prices for the services may go high for end-users
The major difference between BOT and BOOT projects is that the major portion of investment in BOT is done by the government while in the BOOT projects the major portion of the investment is done by the private entities.
Comparison Between BOOT Model and BOT Business Model
This is very important to note that both BOT and BOOT models of outsourcing are variants of the public-private partnership (PPP) model. The former model is more popular as compared to the latter. The difference line between the two models is very bleak. The major differences between those two models compared in terms of risk, cost efficiency, and many other factors are mentioned in the following table:
| Comparison Factor | Build Operate Transfer (BOT) Model | Build Own Operate Transfer (BOOT) Model |
| Risk | Higher risk due to funding from one entity | Better chances of risk mitigation due to multiple funding partners |
| Cost | Reduced service charges for an end-user | Increased service charges for an end-user |
| Efficiency | Moderately efficient and productive model | Highly efficient and productive model |
| Nature | Build Operate and Transfer BOT contract is done with a private entity by the public entity on concessional terms and conditions to build and operate a software-based infrastructure service for a certain period before handing over the operation to the government entity. | In this form of development model, a contract with a single private party or a consortium of parties is signed by the government allowing the private entities to invest in the project and operate for a certain period of time before handing over the project to the government entity. |
| Funding | A public entity or an incumbent government funds the project with reduced involvement of private financing | A private organization or a group of organizations (Consortium) funds the project. And, public finance is less involved in building and operating the software infrastructure |
| Risk Bearers | Equity risk is assumed by the public entity (government). The construction/development risk is shouldered by a private organization | Equity, as well as other commercial risks, are assumed by the private organization |
| Ownership | The ownership of the entire project belongs to the public entity that owns the infrastructure | A private company owns the infrastructure/service until the infrastructure is transferred to the government after the contract period. |
| Suitability | This model is good for very large projects with a huge amount of investment for building and operating the project | Very useful for all sizes of projects because the funds can be invested through multiple sources |
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