PPP model in India: types, VGF, PPPAC and how contractors take part

The PPP model is how India builds many of its highways, ports, airports, hospitals and water projects without the government paying the full cost up front. This guide explains what a public private partnership is in the government's own words, the main types of PPP models side by side, how PPP differs from EPC, how VGF and PPPAC work, and where a contractor or MSE fits in.

What is the PPP model?

The Department of Economic Affairs (DEA), Ministry of Finance, defines it like this:

"A PPP means an arrangement between Government or statutory entity or Government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or related services for public benefit, through investments being made by and/or management undertaken by the private sector entity for a specified period of time, where there is a substantial risk sharing with the private sector and the private sector receives performance linked payments that conform (or are benchmarked) to specified, pre-determined and measurable performance standards."

In simple words, a deal is a PPP only if all of these are true:

• The partner is private. DEA counts a company with 51% or more non-government ownership as private.
• It's a public asset or service, such as a road, a water supply system or a hospital.
• The private side invests money, manages the asset, or both. Investment is not always needed; a management deal can also be a PPP.
• It runs for a fixed period. No PPP lasts forever.
• Risk is shared. Each risk goes to the side best able to handle it.
• Payment depends on performance against standards that can be measured.

Under a normal construction contract, the contractor carries only the design and construction risk. In a PPP, the private partner may also carry the financing, demand and operating risks. A contract that only outsources a service does not meet every condition, so it is not a PPP.

The public body stays answerable to users. On a BOT highway, for example, the National Highways Authority of India (NHAI) still has to make sure the road is kept to standard.

PPP terms you'll see in tender documents

• Concession: the bundle of rights the public body hands to the private partner, such as the right to build a road and collect tolls on it. The private company holding it is the concessionaire.
• SPV (special purpose vehicle): the company the winning bidder forms under the Companies Act, 2013 to sign the concession agreement and carry out the project.
• COD (commercial operation date): the day the project starts operating.
• Model Concession Agreement (MCA): the standard contract published for a sector and model, for example the MCA for hybrid annuity highway projects issued in 2016.

Types of PPP models

DEA's PPP Guide for Practitioners names three basic families: management contracts, lease contracts and build-operate-transfer. Most Indian models are variants of these, and they differ in who carries which risk.

BOT (build-operate-transfer), toll

The public body gives the private partner the right to design, build, finance, operate and maintain a new asset, and the partner recovers its money mainly from user charges such as tolls. On national highways, the concession period for BOT projects is 15 to 20 years, and the concessionaire maintains the road throughout it. The asset stays government property all along.

HAM (hybrid annuity model)

The Cabinet Committee on Economic Affairs approved HAM for highways on 27 January 2016, for projects that don't work on BOT (toll). It mixes public and private money:

• 40% of the project cost is paid by the government as construction support during construction.
• The other 60% is paid to the concessionaire as annuities over the operation period, with interest.
• Toll collection is the government's job, so the developer doesn't carry traffic risk or inflation risk. It still carries construction and maintenance risk, and part of the financing risk.

The concession period for HAM highway projects is generally 15 years.

DBFOT (design-build-finance-operate-transfer)

The private partner designs, finances and builds a new facility, operates it during a long lease or concession, and hands it back to the public body at the end. DEA's model concession agreements cover DBFOT, alongside BOT, annuity and other models.

BOOT and BOO

• BOOT (build-own-operate-transfer): the private partner owns the asset for a set period and then transfers it.
• BOO (build-own-operate): the private partner finances, builds, owns and runs the facility in perpetuity, under the terms of the original agreement and ongoing regulation. It's the only model where ownership stays private for good.

TOT (toll-operate-transfer)

TOT is for roads the government has already built. A public-funded highway that has been operating for two years is put out to bid. The winner pays NHAI a lump sum up front and in return collects the tolls and maintains the road for a fixed period. TOT and InvIT concessions on national highways run for 20 to 30 years. The Government treats TOT projects as PPP projects.

O&M, OMT and management contracts

• O&M (operation and maintenance): a private operator runs a publicly owned asset for a set term. Ownership stays with the public body.
• OMT (operate, maintain and transfer): used on national highways, with a concession period of generally 9 years.
• Management contracts: the private partner manages a range of tasks for a short period, typically 3 to 5 years, while the assets and investment stay with the public body.

Lease

The public body leases an existing asset to a private partner for a medium term. The partner collects the user charges and pays part of them to the owner as a lease fee. Variants include build-lease-transfer and build-operate-lease-transfer.

PPP models compared

PPP vs EPC

EPC (engineering, procurement and construction) is a public-funded contract. The government pays the contractor to design and build the asset, usually in stages as work progresses. The Government notes that EPC is limited by how much money the Government has, which is one reason HAM was brought in.

DEA's practitioners' guide sets out the differences between traditional procurement (such as EPC or BOQ contracts) and PPP:

On national highways, an EPC contractor's defect liability period is 5 years for bituminous roads and 10 years for concrete roads. Under BOT and HAM, the concessionaire maintains the road for the whole concession period.

PPP projects in India

Roads are the most visible PPP projects. When the Bharatmala Pariyojana programme was set up, its standard operating procedure planned for 60% of projects on HAM, 10% on BOT (toll) and the rest on EPC. Recent Cabinet approvals on HAM include the 6-lane Bhubaneswar Bypass in Odisha (110.875 km, ₹8,307.74 crore, approved 19 August 2025) and the 4-lane Patna–Arrah–Sasaram corridor in Bihar (120.10 km, ₹3,712.40 crore, approved 28 March 2025).

Beyond roads, the sectors that can get VGF show where PPPs are used: railways, ports, airports, inland waterways, power, urban transport, water supply, sewerage, solid waste management, storage and cold chains, oil and gas pipelines, irrigation, telecom, education and health.

Viability gap funding (VGF)

Some projects are good for the country but can't earn enough from user charges to pay back a private investor. The Scheme for Financial Support to Public Private Partnerships in Infrastructure, run by the Ministry of Finance, gives these projects a grant to close the gap. That grant is VGF.

How much VGF a project can get:

Rules that matter to bidders:

• The bid is on the grant. The private partner is chosen by open competitive bidding, and the bidding criterion is the amount of VGF the bidder asks for, when all other terms are comparable. The lowest grant asked wins.
• The project must charge users. It has to provide a service against a pre-set tariff or user charge.
• The money comes last. The grant is paid during construction, but only after the private company has put in all its own equity, and then in step with the lenders' loans.
• Who approves: an Empowered Committee chaired by the Secretary (Economic Affairs) can sanction VGF of up to ₹200 crore for a project. Larger amounts need the Finance Minister's approval too.
• Total project cost for VGF never includes the cost of land.

PPPAC and how PPP projects are approved

The Public Private Partnership Appraisal Committee (PPPAC) is, in DEA's words, "the apex body for appraisal of PPP projects in the Central Sector". It was set up in 2006 after a Cabinet decision of 27 October 2005. It is chaired by the Secretary, Department of Economic Affairs, with the CEO of NITI Aayog, the Secretaries of the Department of Expenditure and the Department of Legal Affairs, and the Secretary of the department sponsoring the project.

DEA also publishes model concession agreements and a model request for proposal for PPP projects. For VGF, projects built on such standard documents are preferred, and stand-alone documents get closer scrutiny.

How PPP projects are bid

DEA's 2025 model RFP for PPP projects uses a single-stage, two-part electronic bid:

1. Technical bid: your eligibility, financial capacity (net worth) and technical capacity (past projects) are checked first.
2. Financial bid: opened only for bidders who qualify. You bid either the highest premium you will pay the authority or the lowest grant you need from it. The best offer is called the "Highest Bidder" and wins.
3. SPV: the winner forms a special purpose company to sign the concession agreement.

Older PPP tenders used two stages: a request for qualification (RFQ) to shortlist up to six bidders, then a request for proposal for prices. You'll still see both styles.

How contractors and MSEs take part

PPP bids ask for large net worth and big past projects, so most small firms take part in one of three ways.

1. As a consortium member

A consortium is a group of companies bidding together. Under the 2025 model RFP:

• A consortium can have up to 6 members (the authority may set a lower number).
• One member is the lead member and must hold at least 26% of the SPV's equity.
• Every member whose experience is counted must also hold at least 26%, and keep at least 26% of the equity and 5% of the total project cost until one year after the project starts operating (COD).
• Together, the members must hold at least 51% of the SPV until the first anniversary of COD.
• Members sign a joint bidding agreement and are jointly liable until financial close.
• A firm can be in only one consortium for a tender, and can't also bid alone.

2. As a contractor or supplier to the concessionaire

The concessionaire hires other firms for construction, operation and maintenance. The concession agreement calls these contracts Project Agreements. The authority can review them, and the authority or the lenders can step in if things go wrong. The model RFP bars the concessionaire from sub-contracting works to a contractor from a country that shares a land border with India unless that contractor is registered with the Competent Authority.

In practice, this means civil, electrical and other sub-contracts, material supply, and maintenance work for the SPV or its main construction contractor. Here you deal with a private company, so your price and track record count most.

3. Through EPC and maintenance tenders around PPPs

Many highway projects stay on EPC, and stretches whose defect liability or concession period has ended are maintained under performance-based maintenance contracts (about 5 to 7 years) or short-term maintenance contracts (1 to 2 years). These are ordinary government tenders that a mid-sized contractor can bid for directly. You can find them among live NHAI tenders and civil works tenders on GovtTenderHub.

Before you bid for any of these, check the experience, turnover and bid capacity rules in our guide to tender eligibility criteria.

Common questions

What is the full form of PPP?

PPP stands for public private partnership. In India it means a long-term arrangement in which a private company provides a public asset or service, shares the risks and is paid against measurable performance standards.

What are the main types of PPP models?

DEA lists three basic families: management contracts, lease contracts and build-operate-transfer. Variants used in India include BOT (toll), HAM, DBFOT, BOOT, BOO, TOT and OMT. They differ mainly in who pays for construction, who collects the revenue and who carries each risk.

Is EPC a PPP model?

No. EPC is a public-funded contract: the government pays the contractor to build the asset, and the contractor's job ends after the defect liability period. In a PPP the private partner invests or manages the asset and is paid over many years against performance.

What is the difference between BOT and HAM?

In BOT (toll), the private partner pays for the project and recovers its money from tolls, so it carries the traffic risk. In HAM, the government pays 40% of the cost during construction and the other 60% as annuities with interest, and collects the tolls itself, so the developer carries no traffic risk.

What is VGF in PPP?

Viability gap funding is a grant from the Ministry of Finance's scheme for PPPs that are useful but can't pay for themselves. The Centre gives up to 20% of the total project cost (30% for social sector projects), and the sponsoring government can add the same again. Bidders compete on how little grant they need.

Can a small contractor or MSE bid for a PPP project?

Bidding alone is hard because PPP tenders ask for high net worth and large past projects. The usual routes are joining a consortium (with at least 26% equity if your experience is counted) or working as a sub-contractor or supplier to the concessionaire. You can also bid directly for EPC and maintenance contracts on the same roads. To hear about new ones, set up daily tender alerts.

Who approves PPP projects in India?

Central government PPP projects are appraised by the PPPAC, chaired by the Secretary, Department of Economic Affairs. VGF is sanctioned by an Empowered Committee, with the Finance Minister's approval for amounts above ₹200 crore.