Public-Private Partnerships: Terms Related to Building and Facility
Partnerships (Other Written Prod., 04/01/1999, GAO/GGD-99-71).

Governments at all levels have struggled in recent years to contain
costs without reducing services. At the federal level, agencies have
been increasingly interested in managing buildings in a more
business-like manner, including the formation of partnerships between
the government and the private sector. These partnerships have prompted
the use of a wide variety of terms, many of which overlap, but may have
subtly different meanings. This glossary describes the most commonly
used terms, practices, and techniques used by the government and private
sector asset management.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-71
     TITLE:  Public-Private Partnerships: Terms Related to Building and
	     Facility Partnerships
      DATE:  04/01/1999
   SUBJECT:  Joint ventures
	     Federal property management
	     Federal office buildings
	     Government publications
	     Private sector practices

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Cover
================================================================ COVER

Glossary

April 1999

PUBLIC-PRIVATE PARTNERSHIPS -
TERMS RELATED TO BUILDING AND
FACILITY PARTNERSHIPS

GAO/GGD-99-71

(410434)

Abbreviations
=============================================================== ABBREV

PUBLIC-PRIVATE PARTNERSHIPS
============================================================ Chapter 0

In recent years, governments at all levels have struggled to limit
costs without reducing services.  At the federal level, various
initiatives have been aimed at rethinking the role of the government
in managing its buildings and properties, initiatives that in many
cases mirror efforts at the state and local level as well as efforts
in other countries.  To meet these fiscal demands, federal agencies
are increasingly interested in managing buildings in a more
business-like manner, including exploring the formation of
partnerships between the federal government and the private sector. 

These partnership initiatives have engendered the use of a wide
variety of terms, many of which overlap but may have subtly different
meanings.  This glossary is intended to facilitate a better
understanding of public-private partnership related terms as they are
used in the federal and private sectors.  This document was prepared
at the request of Representative Steve Horn, Chairman, Subcommittee
on Government Management, Information and Technology, House Committee
on Government Reform, and Representative Bob Franks, Chairman,
Subcommittee on Economic Development, Public Buildings, Hazardous
Materials and Pipeline Transportation, House Committee on
Transportation and Infrastructure. 

Our objective was to describe the most commonly used terms,
practices, and

GLOSSARY
============================================================ Chapter 1

   TYPES OF PUBLIC-PRIVATE
   PARTNERSHIPS
---------------------------------------------------------- Chapter 1:1

      BUILD-OWN-OPERATE (BOO)
-------------------------------------------------------- Chapter 1:1.1

Under a BOO transaction, the contractor constructs and operates a
facility without transferring ownership to the public sector.  Legal
title to the facility remains in the private sector, and there is no
obligation for the public sector to purchase the facility or take
title.  A BOO transaction may qualify for tax-exempt status as a
service contract if all Internal Revenue Code requirements are
satisfied. 

      BUILD/OPERATE/TRANSFER (BOT)
      OR BUILD/TRANSFER/OPERATE
      (BTO)
-------------------------------------------------------- Chapter 1:1.2

Under the BOT option, the private partner builds a facility to the
specifications agreed to by the public agency, operates the facility
for a specified time period under a contract or franchise agreement
with the agency, and then transfers the facility to the agency at the
end of the specified period of time.  In most cases, the private
partner will also provide some, or all, of the financing for the
facility, so the length of the contract or franchise must be
sufficient to enable the private partner to realize a reasonable
return on its investment through user charges. 

At the end of the franchise period, the public partner can assume
operating responsibility for the facility, contract the operations to
the original franchise holder, or award a new contract or franchise
to a new private partner.  The BTO model is similar to the BOT model
except that the transfer to the public owner takes place at the time
that construction is completed, rather than at the end of the
franchise period. 

      BUY-BUILD OPERATE (BBO)
-------------------------------------------------------- Chapter 1:1.3

A BBO transaction is a form of asset sale that includes a
rehabilitation or expansion of an existing facility.  The government
sells the asset to the private sector entity, which then makes the
improvements necessary to operate the facility in a profitable
manner. 

      CONTRACT SERVICES
-------------------------------------------------------- Chapter 1:1.4

         OPERATIONS AND
         MAINTENANCE
------------------------------------------------------ Chapter 1:1.4.1

A public partner (federal, state, or local government agency or
authority) contracts with a private partner to provide and/or
maintain a specific service.  Under the private operation and
maintenance option, the public partner retains ownership and overall
management of the public facility or system. 

         OPERATIONS, MAINTENANCE,
         AND MANAGEMENT
------------------------------------------------------ Chapter 1:1.4.2

A public partner (federal, state, or local government agency or
authority) contracts with a private partner to operate, maintain, and
manage a facility or system providing a service.  Under this contract
option, the public partner retains ownership of the public facility
or system, but the private party may invest its own capital in the
facility or system.  Any private investment is carefully calculated
in relation to its contributions to operational efficiencies and
savings over the term of the contract.  Generally, the longer the
contract term, the greater the opportunity for increased private
investment because there is more time available in which to recoup
any investment and earn a reasonable return.  Many local governments
use this contractual partnership to provide wastewater treatment
services. 

      DESIGN-BUILD-OPERATE (DBO)
-------------------------------------------------------- Chapter 1:1.5

In a DBO project, a single contract is awarded for the design,
construction, and operation of a capital improvement.  Title to the
facility remains with the public sector unless the project is a
design/build/operate/transfer or design/build/own/operate project. 
The DBO method of contracting is contrary to the separated and
sequential approach ordinarily used in the United States by both the
public and private sectors.  This method involves one contract for
design with an architect or engineer, followed by a different
contract with a builder for project construction, followed by the
owner's taking over the project and operating it. 

A simple design-build approach creates a single point of
responsibility for design and construction and can speed project
completion by facilitating the overlap of the design and construction
phases of the project.  On a public project, the operations phase is
normally handled by the public sector or awarded to the private
sector under a separate operations and maintenance agreement. 
Combining all three phases into a DBO approach maintains the
continuity of private sector involvement and can facilitate
private-sector financing of public projects supported by user fees
generated during the operations phase. 

      DEVELOPER FINANCING
-------------------------------------------------------- Chapter 1:1.6

Under developer financing, the private party (usually a real estate
developer) finances the construction or expansion of a public
facility in exchange for the right to build residential housing,
commercial stores, and/or industrial facilities at the site.  The
private developer contributes capital and may operate the facility
under the oversight of the government.  The developer gains the right
to use the facility and may receive future income from user fees. 

While developers may in rare cases build a facility, more typically
they are charged a fee or required to purchase capacity in an
existing facility.  This payment is used to expand or upgrade the
facility.  Developer financing arrangements are often called capacity
credits, impact fees, or exactions.  Developer financing may be
voluntary or involuntary depending on the specific local
circumstances. 

      ENHANCED USE LEASING (EUL)
-------------------------------------------------------- Chapter 1:1.7

An EUL is an asset management program in the Department of Veterans
Affairs (VA) that can include a variety of different leasing
arrangements (e.g., lease/develop/operate, build/develop/operate). 
EULs enable the VA to long-term lease VA-controlled property to the
private sector or other public entities for non-VA uses in return for
receiving fair consideration (monetary or in-kind) that enhances VA's
mission or programs.  (See 38 U.S.C.   8161, et seq.)

      LEASE/DEVELOP/OPERATE (LDO)
      OR BUILD/DEVELOP/OPERATE
      (BDO)
-------------------------------------------------------- Chapter 1:1.8

Under these partnership arrangements, the private party leases or
buys an existing facility from a public agency; invests its own
capital to renovate, modernize, and/or expand the facility; and then
operates it under a contract with the public agency.  A number of
different types of municipal transit facilities have been leased and
developed under LDO and BDO arrangements. 

      LEASE/PURCHASE
-------------------------------------------------------- Chapter 1:1.9

A lease/purchase is an installment-purchase contract.  Under this
model, the private sector finances and builds a new facility, which
it then leases to a public agency.  The public agency makes scheduled
lease payments to the private party.  The public agency accrues
equity in the facility with each payment.  At the end of the lease
term, the public agency owns the facility or purchases it at the cost
of any remaining unpaid balance in the lease. 

Under this arrangement, the facility may be operated by either the
public agency or the private developer during the term of the lease. 
Lease/purchase arrangements have been used by the General Services
Administration for building federal office buildings and by a number
of states to build prisons and other correctional facilities. 

      SALE/LEASEBACK
------------------------------------------------------- Chapter 1:1.10

A sale/leaseback is a financial arrangement in which the owner of a
facility sells it to another entity, and subsequently leases it back
from the new owner.  Both public and private entities may enter into
sale/leaseback arrangements for a variety of reasons.  An innovative
application of the sale/leaseback technique is the sale of a public
facility to a public or private holding company for the purposes of
limiting governmental liability under certain statutes.  Under this
arrangement, the government that sold the facility leases it back and
continues to operate it. 

      TAX-EXEMPT LEASE
------------------------------------------------------- Chapter 1:1.11

Under a tax-exempt lease arrangement, a public partner finances
capital assets or facilities by borrowing funds from a private
investor or financial institution.  The private partner generally
acquires title to the asset, but then transfers it to the public
partner either at the beginning or end of the lease term.  The
portion of the lease payment used to pay interest on the capital
investment is tax exempt under state and federal laws.  Tax-exempt
leases have been used to finance a wide variety of capital assets,
ranging from computers to telecommunication systems and municipal
vehicle fleets. 

      TURNKEY
------------------------------------------------------- Chapter 1:1.12

Under a turnkey arrangement, a public agency contracts with a private
investor/vendor to design and build a complete facility in accordance
with specified performance standards and criteria agreed to between
the agency and the vendor.  The private developer commits to build
the facility for a fixed price and absorbs the construction risk of
meeting that price commitment.  Generally, in a turnkey transaction,
the private partners use fast-track construction techniques (such as
design-build) and are not bound by traditional public sector
procurement regulations.  This combination often enables the private
partner to complete the facility in significantly less time and for
less cost than could be accomplished under traditional construction
techniques. 

In a turnkey transaction, financing and ownership of the facility can
rest with either the public or private partner.  For example, the
public agency might provide the financing, with the attendant costs
and risks.  Alternatively, the private party might provide the
financing capital, generally in exchange for a long-term contract to
operate the facility. 

   OTHER TERMS RELATED TO
   PUBLIC-PRIVATE PARTNERSHIPS
---------------------------------------------------------- Chapter 1:2

      AIR RIGHTS
-------------------------------------------------------- Chapter 1:2.1

Air rights provide the right to use, control, or occupy the space
above a designated property.  Air rights can often be leased, sold,
or donated to another party. 

      ANCHOR TENANT
-------------------------------------------------------- Chapter 1:2.2

An anchor tenant is the major tenant that attracts or generates
traffic within a commercial operation.  Anchor tenants are
strategically placed to maximize business for all tenants.  The type
of anchor tenant depends on the type of commercial activity. 

      ASSET SALE
-------------------------------------------------------- Chapter 1:2.3

An asset sale is the transfer of ownership of government assets to
the private sector.  Usually legislation or an Executive Order
defines the transfer price distribution and recoupment priorities. 
In general, the government has no role in the financial support,
management, or oversight of the asset after it is sold.  However, if
the asset is sold to a company in an industry with monopolistic
characteristics, the government may regulate certain aspects of the
business, such as utility rates. 

      CAPITAL LEASE
-------------------------------------------------------- Chapter 1:2.4

A capital lease is a lease that must be reflected on a company's
balance sheet as an asset and corresponding liability.  Generally,
this applies to leases where the lessee acquires essentially all of
the economic benefits and risks of the leased property.  (Contrast
with Operating Lease.)

      CASH FLOW
-------------------------------------------------------- Chapter 1:2.5

Cash flow is cash receipts minus cash disbursements from a given
operation or asset for a given period.  A cash flow statement shows
all sources and uses of cash reflected in the balance sheet cash
account from one period to the next. 

      CONCESSION BENEFITS
-------------------------------------------------------- Chapter 1:2.6

Concession benefits are rights to receive revenues or other benefits
for a fixed period of time.  (Also see franchising.)

      COOPERATIVE AGREEMENTS
-------------------------------------------------------- Chapter 1:2.7

A cooperative agreement as set forth in 31 USC 6305 is the legal
instrument an executive agency uses to reflect a relationship between
the U.S.  government and a state, a local government, or other
recipient when (1) the principal purpose of the relationship is to
transfer a thing of value to the state, local government, or other
recipient to carry out a public purpose of support or stimulation
authorized by U.S.  law, and (2) substantial involvement is expected
between the executive agency and the state, local government, or
other recipient in carrying out the activity contemplated in the
agreement. 

      EQUITY
-------------------------------------------------------- Chapter 1:2.8

Equity is the difference between fair market value of the property
and the amount still owed on its mortgage. 

      FEE SIMPLE
-------------------------------------------------------- Chapter 1:2.9

A fee simple is an absolute and unqualified estate providing the
owner with all incidence of ownership, including the unconditional
power of disposition. 

      FRANCHISING
------------------------------------------------------- Chapter 1:2.10

Under the franchising of external services, the government grants a
concession or privilege to a private-sector entity to conduct
business in a particular market or geographical area--for example,
operating concession stands, hotels, and other services provided in
certain national parks.  The government may regulate the service
level or price, but users of the service pay the provider directly. 

      GROUND LEASE
------------------------------------------------------- Chapter 1:2.11

A ground lease is a lease for the use and occupancy of land only,
usually for a long period of time.  It is also called a land lease. 

      LEASE
------------------------------------------------------- Chapter 1:2.12

A lease is a written agreement between the property owner and a
tenant that stipulates the conditions under which the tenant may
possess the real estate for a specified period of time and amount of
rent. 

      LEASEHOLD ESTATE
------------------------------------------------------- Chapter 1:2.13

A leasehold estate is an estate in real property held by a
lessee/tenant under a lease. 

      LEVERAGED LEASING
------------------------------------------------------- Chapter 1:2.14

In leveraged leasing arrangements, the owner of a capital facility
obtains the tax benefits of ownership of an asset by arranging debt
financing and leasing the facility to a party who pays rent from
revenues generated by the facility. 

      OPERATING LEASE
------------------------------------------------------- Chapter 1:2.15

An operating lease is a type of lease, normally involving equipment,
whereby the contract is written for considerably less than the life
of the equipment and the lessor handles all maintenance and
servicing.  Also called service leases, operating leases are the
opposite of capital leases, whereby the lessee acquires essentially
all the economic benefits and risks of ownership. 

      PARTNERSHIP
------------------------------------------------------- Chapter 1:2.16

A partnership is a legal relationship existing between two entities
contractually associated as joint principals in a business. 

      PUBLIC-PRIVATE PARTNERSHIP
------------------------------------------------------- Chapter 1:2.17

Under a public-private partnership, sometimes referred to as a
public-private venture, a contractual arrangement is formed between
public- and private-sector partners.  These arrangements typically
involve a government agency contracting with a private partner to
renovate, construct, operate, maintain, and/or manage a facility or
system, in whole or in part, that provides a public service. 

Under these arrangements, the agency may retain ownership of the
public facility or system, but the private party generally invests
its own capital to design and develop the properties.  Typically,
each partner shares in income resulting from the partnership.  Such a
venture, although a contractual arrangement, differs from typical
service contracting in that the private-sector partner usually makes
a substantial cash, at-risk, equity investment in the project, and
the public sector gains access to new revenue or service delivery
capacity without having to pay the private-sector partner. 

      PUBLIC PURPOSE DEBT
------------------------------------------------------- Chapter 1:2.18

Public purpose debt is debt used to finance a project intended to be
of value to the general public.  Such debt can include ordinary
government securities, such as general obligation bonds or revenue
bonds, as well as qualified private activity bonds. 

      REQUEST FOR PROPOSALS (RFP)
------------------------------------------------------- Chapter 1:2.19

An RFP is an announcement, often by a government agency, of a
willingness to consider proposals for the performance of a specified
project or program component.  A request for proposals is often
issued when proposals for a specific research project are being
sought. 

      REQUEST FOR QUALIFICATIONS
      (RFQ)
------------------------------------------------------- Chapter 1:2.20

An RFQ is a procurement tool routinely used by state and local
governments and the private sector to select partners in major
systems acquisitions, mainly those involving real estate development
transactions.  This approach differs from the traditional request for
proposals approach in that it places greater emphasis on the actual
qualifications of the potential contractor--his or her track
record--rather than how well the potential contractor responds to
detailed project specifications and requirements. 

      REVENUE BONDS
------------------------------------------------------- Chapter 1:2.21

Revenue bonds are bonds (instruments of indebtedness) issued by the
public sector to finance a facility or equipment purchase, which,
unlike general obligation bonds, are not backed by the full faith and
credit of the government.  Instead, their revenues are generated from
the facility or equipment that they finance.  Because they are state
or local government bonds, their interest earnings are tax exempt
under the Internal Revenue Code. 

      REVOLVING FUNDS
------------------------------------------------------- Chapter 1:2.22

Revolving funds are accounts authorized to be credited with
collections that are earmarked to finance a continuing cycle of
business-type operations without fiscal year limitation.  For
intragovernmental revolving funds, collections primarily come from
other government agencies and accounts.  A revolving fund can be used
to finance an initial revenue-producing infrastructure project, and
as revenues are generated by the completed facility and returned to
replenish the fund, they can be used to finance subsequent rounds of
project development. 

Revolving funds can help agencies accumulate the resources needed to
make capital acquisitions over time, but should only be established
when agencies have a record of sound financial management and when
fund purchases are small and routine enough to warrant reduced
scrutiny by Congress and OMB. 

      RISK UNBUNDLING
------------------------------------------------------- Chapter 1:2.23

Risk unbundling is a means of facilitating the development of
public-private partnerships for the development of capital
improvement projects.  It calls for the segregation of private and
public risks, with the private sector preferring to assume those
risks that are of a commercial nature and can be appraised and
controlled, leaving the residual risks to governmental entities. 

      SUBLEASE
------------------------------------------------------- Chapter 1:2.24

A sublease is an arrangement whereby a lessee leases the property to
a different end user while the lessor maintains ownership.  Under
such an agreement, the lessee retains all of its obligations under
the lease. 

============================================================ Chapter 2

ORDERING INFORMATION

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*** End of document. ***