CP3P Core Concepts and Principles 4 — Questions and Answers
Question 1: In a DBFOM contract, what does the 'F' signify?
- Facilitate
- Finance (Correct answer)
- Franchise
- Forecast
Correct answer: Finance
DBFOM stands for Design-Build-Finance-Operate-Maintain, with the private partner raising project finance.
Question 2: Which contract type transfers the least lifecycle responsibility to the private sector?
- Design-Build (DB) (Correct answer)
- DBFOM
- Build-Own-Operate (BOO)
- Concession
Correct answer: Design-Build (DB)
Design-Build covers only design and construction, leaving finance, operation, and maintenance with the public sector.
Question 3: Under a Build-Own-Operate (BOO) arrangement, what typically happens to the asset at the end of the contract?
- It is automatically transferred to the government
- It is demolished
- The private partner retains ownership (Correct answer)
- Ownership passes to the lenders
Correct answer: The private partner retains ownership
In BOO, the private party owns the asset indefinitely and there is usually no transfer obligation, unlike BOT.
Question 4: Payment deductions in an availability-based PPP are primarily designed to:
- Punish the private partner for unforeseeable events
- Reduce the government's total cost regardless of performance
- Repay the senior lenders early
- Incentivize performance by reducing payments when availability or service standards are not met (Correct answer)
Correct answer: Incentivize performance by reducing payments when availability or service standards are not met
Deductions link payment to performance, giving the private partner a financial incentive to meet service standards.
Question 5: What is 'optimism bias' in PPP appraisal?
- The tendency to underestimate project costs and durations, often adjusted for in the PSC (Correct answer)
- Private bidders overpricing risk
- Lenders' preference for high-demand projects
- Government overestimating the value of risk transfer to be safe
Correct answer: The tendency to underestimate project costs and durations, often adjusted for in the PSC
Optimism bias is the systematic tendency to underestimate costs and timelines; appraisals apply uplifts to correct it.
Question 6: Which risk is usually best retained by the public sector?
- Construction cost overruns
- Routine maintenance performance
- Facility management staffing
- Changes in law that specifically target the project or PPP sector (Correct answer)
Correct answer: Changes in law that specifically target the project or PPP sector
Discriminatory change in law is within government control, so the public sector typically retains it.
Question 7: A 'handback' provision in a PPP contract ensures that:
- The private partner can return the asset early without penalty
- The asset is returned to the public sector in a specified condition at contract expiry (Correct answer)
- Lenders recover their loans first
- User fees are refunded at the end of the term
Correct answer: The asset is returned to the public sector in a specified condition at contract expiry
Handback requirements set the condition the asset must be in at expiry, often backed by inspections and retention funds.
