Published on 09th June 2023
Build Lease Transfer (BLT) is a project delivery and procurement model primarily used in the infrastructure sector. In this method, a private developer takes on the responsibility of designing, constructing, and financing a project on behalf of a client. The client is generally a public entity, but sometimes even a private organization may resort to the BLT project delivery method.
Once the construction is complete the contractor leases the facility to the client (public entity) for a specific period of time. This period is known as the concession period. At the end of this concession period, the ownership is transferred to the client.
This blog explains everything you need to know about the BLT method.
BLT stands for Build Lease Transfer. As the name suggests, it is a project delivery method wherein the contractor is responsible for designing, building as well as financing the project as per the build lease transfer agreement. Generally, public entities use this method to build public infrastructure and utility projects without risking public money. However, even a private company may also choose to build its facility through this project delivery method.
During the lease period, the entity that contracts the projects has no ownership rights. Once the lease period or concession period is over and the contractor recovers its capital, it transfers the ownership to the project owner.
In contrast to the Build Operate Transfer or BOT delivery method, the contracting firm or EPC company developing the project does not involve in the operation of the facility before transferring the ownership.
Recently, the BLT method has gained popularity in both the private and public sectors due to its advantage of not risking huge capital upfront in designing and building facilities.
The use of the BLT project delivery method is growing rapidly. Since 2019, the BLT market has been growing at a CAGR of 6.5%. This growth of the BLT market is being driven by the following factors.
BLT can reduce upfront costs for the client since the developer assumes the financial responsibility for construction and financing. The client avoids the need for significant capital investment, allowing resources to be allocated to other business priorities.
BLT projects can be completed more efficiently compared to traditional delivery methods. The developer's expertise in design and construction, along with their single-source responsibility, streamlines coordination and minimizes delays.
BLT allows the client to work closely with the developer to customize the facility according to their specific needs and requirements. The design and construction process can be tailored to align with the client's operational goals, resulting in a bespoke solution.
The developer assumes responsibility for construction, maintenance, and facility management during the lease period, reducing risks for the client. The client can focus on core business activities while relying on the expertise of the developer.
The client may incur higher lease costs compared to traditional financing methods due to the inclusion of the developer's profit margins and financing charges. The long-term financial implications of the lease agreement should be carefully evaluated.
While the client benefits from the facility during the lease period, they have limited control over the property compared to full ownership. Modifications or major changes may require the developer's approval, potentially limiting flexibility.
The success of the BLT project is heavily reliant on the developer's competence, reliability, and financial stability. If the developer encounters financial or operational difficulties during the lease period, it may impact the client's operations and long-term plans.
At the end of the lease term, there may be a disruption in the client's operations when the ownership is transferred. The client needs to plan for the transition and ensure a smooth handover to avoid interruptions in business activities.
BLT is used in a variety of sectors within the construction and infrastructure industry, including:
BLT is a procurement model that can offer a number of benefits to both public sector entities and private sector entities. It can help to reduce costs, improve quality, and accelerate the delivery of infrastructure projects. As the global market for BLT projects continues to grow, it is likely that this procurement model will become increasingly popular.