The Group Finance Director, Felicity Bunyan, has asked you into her office, where she tells you the following:
“We have been asked to bid for a major Public Pri have ever undertaken before. The government wishes to build a new college on a greenfield site on the outskirts of Capital City. They do not have sufficient cash available to pay for this outright so they have proposed that we work with them on a PPP basis.
The construction work will take approximately three years. We would normally set a price of $350 million for a project of this size, with our own costs estimated at $300 million for the construction work.
Once the construction work is over we will maintain and operate the buildings and the site itself. We will be responsible for all support services, including landscaping, repair work, cleaning and catering. The government will appoint the academic and administrative staff and will cover the costs of providing educational services.
We will generate revenues from three sources. Firstly, the government will pay an annual facilities charge, which will cover both the cost of leasing the college buildings and our commitment to maintenance and upkeep. Secondly, the site will include student accommodation. Students will be able to rent rooms from us during term time and we will be permitted to charge a commercial rent. Thirdly, the college catering will be a profit-making venture. We will be able to charge staff and students for meals and refreshments.
The proposed contract will run for 20 years after the construction work has been completed. At the end of that time we will sell the buildings, including the student accommodation and catering outlets, to the government for a nominal sum of $1.
This is by far the largest PPP project that we have undertaken. I need you to email me your views on the following:
- Firstly, how will Bild recognise profits from this project? What matters will the company have to consider when deciding how much profit we have earned, if any, in any given year?
- Secondly, what are the specific challenges
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