Identification of the BT Mode
At present, for the purpose of transformation and upgrade, more and more construction enterprises are stepping into the field of BT projects gradually while undertaking traditional construction business. However, after engaged in a number of what is called "BT project", I discovered that numerous construction enterprises bear a quite vague understanding, or rather misguided recognition towards BT mode. Huge legal risk tend to arise form the so called "false-BT mode". That's why it is essential for us to figure out what the real BT mode is.
1.The Definition of BT Mode
BT is short for Build Transfer, namely build-transfer mode. As the project originator, through the statutory procedures(tender or non-tender), the government or a unit authorized by the government chooses the BT project sponsor of the proposed infrastructure or public utility projects. During the construction period, the BT project sponsor establishes the BT mode project company to invest, finance and construct, conduct the transfer of the project according to the agreement and recoup the investment from expenses by the government or its authorized unit after the completion of the project.
2. Operation Modes of the BT Mode
Based on the function construction enterprises assumes during the operation of BT projects, BT modes can be classified into three categories.
The 1stcategory: second tender BT mode. The construction enterprises assume the most functions under this mode. As the BT project sponsor, the construction enterprises need to set up a project company, complete the investment and finance of the project. Besides, the supervision units of the project and construction units are entrusted in the name of the project company, except that the design of the project is entrusted by the government. The construction units undertaking the mission of construction are confirmed by means of re-bidding procedure, hence its name "second tender mode". Large-scale road and bridge and other municipal and infrastructure projects tend to adopt this mode.
The 2ndcategory: direct construction BT mode. This mode differs from the second tender mode in that: a) the supervision units are commissioned by the government and the project company; b) construction enterprises(or its subordinate units) assume the construction function directly, hence its name "direct construction mode". This mode is widely adopted in practice on the ground that in the perspective of the construction enterprise, through this operation mode, the construction enterprise can make profits via assuming construction function while gaining investment return via assuming investment function. Construction is what the construction enterprises are most adept at and the construction profits are the most valued income in the eyes of most construction enterprises.
The 3rdcategory:Compared with direct construction mode, merely a project management department is established under this mode. The construction enterprise does not set up a separate project company while assuming construction function. In other words, the project owner is consubstantial with the construction unit, hence its name "". In the strict sense, big problems exist in this mode: a) build-construct does not comply with the present building laws and regulations; b) the conclusion of the construction contract faces operational obstacles without the construction approval procedures. However, cases in practice signified the fact that most regulations are local government legislations, which rest upon a relatively lower lever of effectiveness, thus leading to the phenomenon of One Project One Discussion all over the country, namely, different projects function differently. In short, in the eyes of the government, nothing is too hard to conquer in order for implementation of BT projects. Therefore, there exists a lot of room for negotiation between the investor and the government under the operation fashion of BT mode. However, we are supposed to look into everything dialectically. Too much randomness in operation usually contains higher legal risk.
3.Documents which help to distinguish legitimacy of BT Projects
3.1 Application approval of the construction project under BT mode. Application approval upon the relevant construction projects under BT mode given by the local government to the application units.
3.2 Approval decision from the local people's congress upon including the counter-purchase and expenses of the BT project into the municipal budget plan at a corresponding level. After approving the relevant construction projectsunder the BT mode, the local government files corresponding application to the local people's congress. In respond to the government's application, the local people's congress reaches a decision approving the counter-purchase and expenses of the BT project into the municipal budget plan at a corresponding level, confirming the counter-purchase sum of money and payment period of the counter-purchase money and interests.
3.3Counter-purchase Commitment Letter from the local government to the investor.
3.4As a contract party of the BT agreement, if the government is not the subject of the project application, the BT agreement does not take effect without the government authorization.