The XYZ Pension Fund Resource-Constrained

The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset, and must show its Board of Trustees that it has selected the most potentially profitable investments. It is being offered 6 alternatives, each of which has reached construction completion, and with 25 years’ concession period remaining. These are:

Project typeFinanced byGross Investment requiredNet Present Value $Projected IRR %
Single toll roadBank debt$1m80,00013.9
Large general HospitalBond$4m430,00014.4
Metro-system expansionBank debt$3m250,00016.0
Portfolio of PFI schoolsBank debt$2m230,00014.1
Bridge River crossingBank debt$2m210,00016.1

You are the projects’ financial advisor retained by the Trustees. Advise them (explaining your reasons);

2. Now consider a significant new PPP project (financed wholly by the private sector) where for some reason construction completion is delayed. Critically analyze and describe the consequences for the “D&B”/” Tier 1” Contractor, of the following situations:

a time overrun extending past the projected Completion Date

what the “penalties” might be on the [Tier 1] Contractor, and importantly also explain why “penalties” is written here in quotes; and

which parties might seek remedies and apply or enforce these “penalties” at each stage in a progressive delay;

giving an indication of how large they might be and why; and demonstrate how this would be calculated and applied.