Fish Head Design for Wellington Movie Museum and Conventions Centre may have a Few Hooks

BOO – ROT – DBOM - AND ALL THAT

I rather like the chic design for the proposed Wellington Movie Museum and Convention Centre. This is pitched as drawing inspiration from Wellington's maritime location, its dramatic weather patterns and Maori mythology [which has the harbour as the mouth at the head of Maui's fish: Te Upoko o te Ika].

http://www.stuff.co.nz/business/83124112/new-150m-design-for-wellington-movie-museum-and-convention-centre

But it will push the cost from $135 million to $150 million.

The project will include a 1100-seat conference centre and a museum run by Sir Peter Jackson and Sir Richard Taylor.

What I don’t like are the funding arrangements.

I can’t see why Jackson and Taylor can’t chip in more; I worry that the contractual arrangements between the Moguls and Wellington City Council will make it impossible for the latter to offset risk, and partially or wholly divest to other parties in the private sector; and I'm concerend that ratepayers are again being asked to shoulder a substantial financial burden like bricked camels.

Jackson has a personal fortune estimated conservatively at $450 million and an annual income of at least $45 million. Personally, I think he is a cheapskate who could do more for his birth city and ask for less from ordinary citizens. If I was in his position, I would be looking for legacy and gifting money to encourage the next generation of movie makers and viewers.

And I wonder why he cannot further apply his talents to putting together the finance for the project – drawing in other investors from among his friends and contacts.

Failing that, WCC CEO Kevin Lavery should be applying his supposed experience with the private sector to explore funding alternatives elsewhere and nail down a funding plan. Perhaps, for example, Deputy Mayor Justin Lester could use his influence with Infratil [the owners of Wellington Airport] to raise some money from them [they are currently very flush with cash and actively looking for investment opportunities].

What we don’t want is the Moguls being pigs in the manger and insisting that WCC and ratepayers bear all the costs and all the risks.

To help the lads out I have listed below some of the types of arrangements that could be considered. 

TYPES OF PUBLIC-PRIVATE PARTNERSHIPS (PPPs)

Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO)

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.

Rehabilitate-Operate-Transfer (ROT)

Upon rehabilitation of existing infrastructure facilities owned by the central or the local government, the concessionaire has the right to operate the facilities for a specified period of time.

Build-Own-Operate (BOO)

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.

Buy-Build-Operate (BBO)

A BBO 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

Operations and Maintenance

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, & Management

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 proving 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 (DB)

A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance.

Design-Build-Maintain (DBM)

A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets.

Design-Build-Operate (DBO)

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 under a separate operations and maintenance agreement. Combining all three passes 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.

Design-Build-Operate-Maintain

Design-Build-Operate-Maintain (DBOM) is where a private entity is given authority to design, build, operate and maintain a facility for a period of time, after which responsibility reverts over to the public owner.

Design-Build-Transfer-Operate

Design-Build-Transfer-Operate (DBTO) is a variation of DBOM described above, which allows private entities to reduce their liability exposure. After design, financing, and construction, ownership is transferred to a public agency and the contractor is allowed to exclusively operate the project over a pre-set time period to the unique circumstances of individual agencies and projects.

Developer Finance

The private party 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 extractions. Developer financing may be voluntary or involuntary depending on the specific local circumstances.

Enhanced Use Leasing (EUL)

An EUL is an asset management program that can include a variety of different leasing arrangements (e.g. lease/develop/operate, build/develop/operate). EULs enable governments to long-term lease government-controlled property to the private sector or other public entities for non-government uses in return for receiving fair consideration (monetary or in-kind) that promotes other government objectives or programs.

Lease/Develop/Operate (LDO) or Build/Develop/Operate (BDO)

Under these partnerships 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

A lease/purchase is an instalment-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 for building US federal office buildings and by a number of states to build prisons and other correctional facilities.

Sale/Leaseback

This 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 a 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

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

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 raise the finance conditional on the deal that has been negotiated.

Super Turnkey

Super Turnkey is where, in addition to the provisions of turnkey projects mentioned previously, the private entity receives real estate development rights along a highway project right-of-way, at station areas, and potentially at off-corridor locations. In exchange for these rights, the super turnkey contractor is expected to provide partial project funding, thus reducing the need for public investment.