Available solutions and potential structuring 

Several structures can bridge the gap between collaborative delivery and project finance. Some are specific to collaborative models, while others (such as holdco financing, RAB models, and cost overrun facilities) have emerged in other financing contexts and can be adapted here. Other structures still are practical contractual modifications designed to facilitate third-party financing. Most retain collaboration through the development phase then transition to bankable risk allocation before or at financial close. These structures are not mutually exclusive. They are often most effective in combination, in many cases when layered together, to achieve an acceptable risk allocation for all parties.

Schedule ‘A’ summarizes the options available and discussed below, organized by stakeholder and lifecycle phase. Each option is discussed in greater detail in the sections that follow.

Progressive design-build with public financing

PDB financed on the public balance sheet is the simplest approach and the most common for pure alliance and IPD projects. The owner funds the project from its own capital budget, appropriations, or government borrowing, and pays participants on an open-book, cost-reimbursable basis. This avoids lender bankability requirements entirely but means the public sector retains virtually all financial risk.¹

Government backstop and contingent support structures

Rather than providing full government financing or accepting all project risks on the public balance sheet, governments may provide targeted contingent support mechanisms that enhance bankability while preserving meaningful risk transfer to the private sector. These structures address specific risk categories that lenders are unable or unwilling to accept in a collaborative delivery context, by providing credit support for defined tail risks while leaving other risks with the integrated project team. Government contingent exposure is limited and defined, not open-ended, and structured to incentivize effective private-sector risk management.

This option can be tailored in a number of ways, to address distinct or general risks, with various instruments as discussed below.

1. Under a contingent equity commitment, the government agrees to inject additional equity capital into the project company if costs exceed a defined threshold or other specified trigger events occur. This provides a subordinated funding source that absorbs cost overruns before they affect senior debt. The commitment is documented as a binding obligation, subject to conditions precedent such as certificate    on of the cost overrun, exhaustion of other funding sources (including the pain share regime), and demonstration that the project remains viable. Features to protect government interests may include a cap on maximum exposure, matching contributions from private sponsors, conversion to a senior or preferred position, and enhanced governance or profit participation rights.
2. A government cost overrun facility or standby facility provides a committed but undrawn source of funds available if costs exceed a specified cap. Unlike contingent equity, this may be structured as debt, with the government acting as lender of last resort for construction-phase cost growth. The facility is typically priced above commercial rates and is repayable on terms subordinated to senior debt. This mechanism is particularly appropriate where cost growth risk is driven by factors outside the integrated team's control (such as regulatory changes, force majeure events, or market-wide inflation in construction costs). By providing a backstop for these exogenous risks, the government enables the project to proceed on a bankable basis while preserving the collaborative delivery model for risks within the team’s control. The facility may be structured with a deductible or first-loss tranche absorbed by the private sector before the government facility becomes available, ensuring that the integrated team retains meaningful exposure to cost performance.²
3. Revenue guarantees or minimum revenue commitments address lender concerns about demand risk during the operational phase, particularly during ramp-up periods. The government guarantees a minimum level of project revenues, providing lenders with a floor on cash flows to ensure debt service can be met. These may take the form of availability payments, shadow tolls, or minimum revenue top-ups, and may be combined with revenue sharing mechanisms under which the government participates in upside revenues above a defined threshold.

Government backstop structures enable projects to proceed with private financing and collaborative principles while addressing specific bankability concerns. They preserve incentive alignment and innovation potential, and they allow flexibility through tailored thresholds, caps, and pricing. However, they require careful design to avoid moral hazard, with clearly defined and objectively verifiable triggers, and lenders will require assurance that the government's obligations are legally binding and enforceable. Governments have long provided guarantees, subsidies, and risk-sharing mechanisms for infrastructure, applying these tools to collaborative delivery requires adaptation to the specific characteristics of alliance and IPD models, but builds on a well-understood foundation.³

Catalytic capital structures⁴

Layered capital structures and principles⁵ can offer a useful framework for structuring capital and government backstop mechanisms in collaborative delivery.

For instance, blended finance distinguishes between two categories of catalytic capital: (i) risk-absorbing capital, which takes a first-loss position and absorbs a broad range of unspecified risks ahead of commercial investors⁶, and (ii) return-enhancing capital, which offers below-market terms such as extended tenor, capped returns, or concessional interest rates, but does not alter the risk exposure that is frequently the major impediment preventing investors from participating. Risk-absorbing capital is more effective at overcoming barriers that deter private investment in unfamiliar structures, and it most directly addresses the gap collaborative delivery creates, namely the absence of a fixed-price construction obligation to absorb cost growth before it reaches senior lenders. Government backstops are therefore most effective when designed as risk-absorbing instruments (such as first-loss equity or subordinated cost overrun facilities that absorb construction cost growth before senior debt is affected) rather than merely return-enhancing subsidies that improve project economics without addressing the fundamental risk allocation gap.

A layered approach, combining a first-loss tranche (for instance, representing 10–20% of total project costs, calibrated to senior investor risk appetites), a guarantee or insurance facility providing second-loss protection in excess of the first-loss layer, and a reserve account funded through excess project income, would create a comprehensive credit enhancement package that collectively addresses lender concerns without requiring a fixed-price construction contract. A layered package can also be  calibrated to meet DSCR and LLCR targets without reengineering collaborative delivery.

Bundling these instruments is preferable to deploying them in isolation, as multiple layers of protection can be calibrated to achieve an acceptable credit profile for the project as a whole.

To illustrate, the concepts derived from layered capital structures could be applied to the financing of a large-scale infrastructure project delivered in a collaborative mode, producing a bespoke layered (or blended) capital structure along the following lines:

• A first layer of majority equity from principal investors or institutional sponsors (targeting commercial returns);
• A second layer of minority non-voting equity from government or other governmental like entity/agent (targeting returns equivalent to government borrowing costs);
• A senior secured loan from a development finance institution at below-market terms (structured to phase out after a defined period to avoid crowding out the private sector);
• Depending on the assets, additional contributions from utilities, transit authorities or other similar market participants;
• Other senior/hybrid component(s), whether in the form of debt, equity or quasi-equity, from private or public sources, on a standalone or combination thereof.

The above capital stack also illustrates how a development finance institution (DFI) can serve as a concrete de-risking instrument for collaboratively delivered projects. Where a DFI's mandate includes enabling the development of sustainable infrastructure, it is naturally positioned to provide catalytic capital in the form of below-market senior secured debt that improves the cost of capital for the project without crowding out private investment. For collaborative delivery projects, DFI participation could be structured to phase out over time as the project demonstrates stable operational performance, consistent with the principle that catalytic capital should mobilize, rather than displace, private finance.

A further structural possibility warrants separate consideration, namely the case where the principal investor (or a material investor in the equity capital) also serves as the project's delivery lead, performing a dual role as both a main DB contractor or DB joint venture member and an equity investor. This dual-role arrangement effectively bridges the gap between project delivery and project financing, a core tension in the collaborative delivery context. By retaining voting equity and governance control, such an investor can maintain agile, streamlined decision-making during construction, including in response to unforeseen disruptions such as delays, supply chain constraints, and site condition discoveries. In more traditional large-scale infrastructure financing, where investors have varying levels of voting rights, reaching formal decisions on how to overcome such challenges would require lengthy stakeholder discussions, resulting in delays and cost overruns. A preferred waterfall structure, under which such a principal investor receives priority returns before the government receives its more modest return, with remaining upside shared according to equity ownership, is a mechanism that aligns incentives while compensating the risk-bearing party appropriately. A similar waterfall could be designed for a collaboratively delivered project to compensate private equity sponsors or SPV investors for bearing construction-phase risk.

Design-build-finance

Under a design-build-finance (DBF) structure, the design-build consortium obtains short-term construction financing from third-party lenders or uses its own equity resources. A lump-sum payment at substantial completion repays the consortium's costs, providing financial motivation to complete on time, meaning schedule delays with incremental interest costs are borne by the private sector. This can be paired with a progressive procurement strategy where the fixed price is collaboratively developed before construction financing is raised.

Progressive P3

Progressive P3 is the most direct integration of collaborative delivery with private finance. A team is selected primarily on qualifications, not price. The selected team collaborates with the public authority during a development phase governed by an exclusive negotiating agreement or pre-development agreement, advancing design to 30–60% and developing costs on an open-book basis until a guaranteed price is established. Financing and lender selection advance in parallel. Once price is agreed, long-term contracts are finalized and financial close is achieved. Off-ramps allow either party to exit if terms cannot be agreed.

The model deliberately defers non‑recourse financing until a guaranteed price and bankable risk allocation have been collaboratively established, at which point lenders underwrite on a conventional basis. It provides lenders with fixed-price certainty, defined risk allocation, and enforceable contractual remedies, but only after the collaborative development phase has resolved enough uncertainty to produce a bankable risk profile. During the development phase, sponsors should secure indicative lender terms covering scope of technical due diligence, conditions precedent to conversion, and approval rights over key subcontractors, to ensure that financing runs in parallel with price formation.⁷

The Alliance PPP model

The Alliance PPP restructures the relationship between the alliance and private finance. The government agency is the owner participant in the alliance, while the SPV that raises limited-recourse project finance is treated as a non-owner participant alongside the designer, contractor, and equipment suppliers. The government pays actual direct costs of all NOPs monthly in arrears, and the SPV progressively draws down its debt facility to reimburse the government up to the maximum cumulative amount permitted under the loan's monthly drawdown schedule, with any excess funded by the government. Gain-share or pain-share is settled over the remaining contract term through adjustments to the quarterly service payment, affecting equity returns but not jeopardizing debt service.

Generally, lender step‑in and cure rights are intentionally confined to the SPV financing layer, and alliance internal decision‑making remains under unanimous governance, preserving collaborative principles while ensuring finance ability. The SPV functions as a financial intermediary: it borrows from lenders, reimburses the government for NOP costs up to its permitted drawdown, and receives the quarterly service payment during operations. It does not design, build, or operate the infrastructure.

When a lender steps in, it takes control of the SPV's financial functions through conventional mechanisms of cure, step-in, and novation, all operating at the SPV level. The lender does not acquire a seat at the alliance board or the power to direct design decisions, construction methodology, or sequencing. The alliance board continues to make project decisions by unanimous agreement, with the SPV's representative participating but the lender's interest limited to ensuring the SPV meets its financial obligations.

The gain-share and pain-share settlement mechanism provides a further layer of protection. Rather than requiring a lump-sum payment at the end of the construction phase, the adjustment is spread over the remaining PPP term through the quarterly service payment. This affects the SPV's equity return but does not jeopardize debt service, insulating the lender's position from variability in alliance performance.

The principal trade-off is that the government, as owner participant, retains uncapped construction cost risk. Under the alliance's cost-plus remuneration regime, the government reimburses all direct costs incurred by the NOPs and bears residual exposure once each NOP reaches its pain-share cap. This creates open-ended fiscal exposure and complicates conventional value-for-money analysis. The government would need to demonstrate that collaborative benefits (namely, reduced disputation, innovation, whole-of-project optimization, and reduced contingency pricing) are sufficient to offset the loss of construction cost risk transfer. Value‑for‑money analysis should also be reframed to recognize quantified benefits specific to complex mega‑projects, including reduced disputation, right‑sized contingencies, and schedule compression attributable to integrated governance.

From the lender's perspective, the government's retention of construction cost risk is advantageous: the government absorbs cost overruns directly, limiting the lender's construction-phase exposure to its committed facility amount. This represents a stronger credit position than relying on an EPC contractor's balance sheet. However, the model may be less attractive for equity investors, whose returns are subject to variability in alliance performance during construction.

Regulated asset base and regulated revenue models

Regulated asset base (RAB) and regulated revenue models are revenue architectures, not delivery models. They are not inherently collaborative, but they can accommodate collaborative delivery during construction while providing the stable, predictable revenue streams that lenders require during operations. RAB models expose investors to regulatory risk and, depending on the charging mechanism, to demand risk, while availability payment models eliminate demand risk by providing a government-funded periodic fee regardless of actual usage.

Under a RAB model, a company owns (or otherwise has long-term access to) and operates an infrastructure asset with the right to charge a regulated fee (derived from tariffs, tolls, user charges, or other levied fees) to fund operations, recover capital investment through depreciation, and earn a regulated return on invested capital. The allowed revenue is typically built up from several "building blocks": return on capital invested (applying a weighted average cost of capital to the asset base), allowances for operating costs and regulatory depreciation, and adjustments for performance and uncertainty mechanisms.

RAB models have been used extensively across infrastructure asset classes and jurisdictions, including electricity and gas networks and transportation infrastructure. Concession-based revenue models for toll roads, airports, and seaports share the essential characteristic of providing a defined, long-term revenue stream against which private capital can be raised, though they introduce demand risk. Availability payment models, where the government pays a periodic fee regardless of actual usage, eliminate demand risk and produce cash flow profiles closer to those of a core regulated utility.

The relevance to collaborative delivery is the ability to provide a bankable operational-phase revenue stream independent of the construction-phase delivery model. A project could be delivered through an alliance or IPD contract during construction while generating revenue during operations through a regulated tariff, toll, or user charge regime familiar to project finance lenders. The structural challenge is bridging uncertain construction costs and the stable operational revenues against which lenders underwrite.

Certain features of evolving RAB models are particularly relevant. Some models allow investors to receive revenue during construction rather than deferring all revenue until operations commence, lowering the cost of capital (particularly by avoiding the accumulation of capitalized interest during lengthy construction periods) and providing cash flow to service debt during a phase where costs are uncertain. Sharing mechanisms within the RAB framework can also allocate construction cost overruns and savings between the operator and consumers, which is conceptually compatible with alliance gain-share/pain-share mechanisms.

RAB models, however, present challenges. Investability depends on investor confidence in the independence, competence, and predictability of the economic regulator or the enforceability and predictability of tolls or user fees. Regulatory risk (namely, adverse changes to allowed returns, depreciation profiles, or charging rights) is a material concern, particularly where regulators face political pressure. Where revenue is recovered from consumers through utility bills, tariffs, or tolls, political and reputational risks increase when service levels drop or prices rise.

Enhanced equity commitments and completion support

Enhanced equity requires equity investors in the SPV or borrower to provide a greater proportion of capital upfront, together with binding commitments to provide additional equity if delays or cost overruns occur. Sponsors commit at financial close to fund both a base equity contribution and a contingent equity tranche callable upon specified trigger events, such as cost overruns exceeding a defined threshold or schedule delays beyond an agreed tolerance. These commitments are documented as equity commitment letters or subscription agreements, typically secured by parent company guarantees or letters of credit.

This shifts construction-phase risk from lenders to equity sponsors, providing comfort that cost growth will be absorbed before debt service is affected. The structure preserves the integrated team environment and avoids adversarial fixed-price contracting while giving lenders a defined source of funds to address cost growth.

Completion guarantees may complement enhanced equity commitments. Under a completion guarantee, one or more equity sponsors guarantee that the project will achieve completion by a specified date and within a specified budget, failing which the guarantor funds any shortfall or, in more robust formulations, repays outstanding debt. In a collaborative delivery context, completion guarantees would generally be capped to reflect the shared-risk philosophy and avoid reintroducing adversarial dynamics. Where multiple sponsors are involved, liability could be allocated pro rata based on equity interests and risk appetite. Lenders will require guarantors to demonstrate sufficient financial capacity, potentially through parent company guarantees, financial covenants, or credit support.

These mechanisms provide lenders with a defined credit backstop without requiring fundamental changes to the collaborative delivery model. The integrated team continues to operate under alliance or IPD principles, while the financing structure provides an additional layer of protection against cost and schedule risk.

As an additional feature, an equity sponsor having to provide a greater proportion of equity capital upfront could implement financing structure to fund its equity commitment, whether by implementing some of the solutions discussed in this paper, or by issuing capital market instrument, as a way of raising capital without diluting shareholders and without fully leveraging its senior unsecured credit capacity.⁸ Although issued or placed at the sponsor level, a number of financing options (including green and hybrid bond structure) could allow proceeds to be ring-fenced for eligible or dedicated projects under construction.⁹

A further dimension of enhanced equity commitments and completion support warrants careful consideration where the sponsor group comprises entities of materially different scale and financial capacity. In many collaboratively delivered infrastructure projects, the equity consortium will include a mix of large institutional investors (such as pension funds, sovereign wealth funds, or major infrastructure platforms) alongside smaller or mid-market sponsors (such as the holding company or dedicated fund of construction contractors, engineering firms, or specialized developers). Where liability under equity commitment letters, completion guarantees, or contingent equity obligations is allocated on a solidary basis (or joint and several basis), or where cross-indemnities require each sponsor to make good on the default of another sponsor, the practical effect is that the largest balance-sheet participant assumes disproportionate credit exposure to the obligations of its smaller co-sponsors.

To illustrate, consider a consortium in which a large Canadian pension plan holds a 60% equity interest alongside two smaller sponsors each holding 20%. If the contingent equity commitment is structured on a solidary basis (or joint and several basis for common law jurisdictions) and one of the smaller sponsors fails to fund its capital call, the pension plan may be required to advance the shortfall to preserve the project’s financing and avoid a default under the project documentation. The pension plan’s remedy would be limited to seeking recovery from the defaulting sponsor under the cross-indemnity provisions of the shareholders’ agreement (or other governance document). The larger sponsor is, in economic substance, guaranteeing the performance of its smaller co-investors, bearing not only its own proportionate share of construction-phase and/or project related risk but also the credit risk of its partners’ ability to perform their equity obligations.

This structural imbalance is compounded by regulatory and governance constraints applicable to certain classes of institutional investors, which may be subjected to fiduciary duties and investment restrictions imposed by applicable legislative standards (whether federal or provincial) and their own investment policies and procedures. Many pension funds are prohibited, either by statute, regulation, or internal policy, from providing guarantees of third-party obligations or assuming contingent liabilities that are not directly related to the fund’s own investment. A completion guarantee or equity commitment on a solidary basis (or joint and several basis) that effectively requires a pension fund to stand behind the obligations of an unrelated smaller sponsor may constitute a prohibited guarantee or an imprudent investment. Similar constraints apply to other regulated institutional investors, including those entities subject to capital adequacy requirements and certain Crown corporations or public-sector investment entities operating under specific enabling legislation that restricts guarantee activity.

Although there are solutions and options available to address such concerns , any alternative structure does, however, require lender acceptance. Lenders accustomed to solidary/joint and several completion support may view an alternative structure as a weakening of the credit package. To address this concern, any alternative structure should be sized to provide the same quantum of backstop as would otherwise be available under a solidary/joint and several structure, with an appropriate contingency margin. Lenders may also require additional protections, such as minimum creditworthiness thresholds, restrictions on transfers of interests, and covenants ensuring that the alternative structure remains a single-purpose, bankruptcy-remote structure with no other liabilities. Where the project benefits from government contingent support (as discussed above), the combination of individual capped sponsor commitments and a government backstop facility can collectively provide a credit package equivalent to, or stronger than, a conventional solidary/joint and several sponsor guarantee, while respecting the regulatory and fiduciary constraints of institutional investors.

Cost overrun facilities

A cost overrun facility is a distinct tranche of debt financing available only if project costs exceed the base case budget. Such facilities are well-established in project finance, particularly in mining, oil and gas, and large-scale infrastructure where cost uncertainty is inherent.

In the collaborative delivery context, a cost overrun facility provides a dedicated funding source to address cost growth without requiring additional equity contributions or renegotiation of senior debt terms. The facility is typically committed at financial close but remains undrawn until specified trigger events occur. Drawdowns are subject to conditions precedent, which may include certification by an independent technical advisor that the cost overrun is bona fide and the revised budget achievable.

Cost overrun facilities are priced at a margin above senior debt, reflecting their higher risk profile. This margin differential incentivizes cost management while providing lenders with comfort that a defined funding source exists. Repayment may be subordinated to senior debt or pari passu depending on lender requirements and overall debt capacity. In some structures, the facility converts to equity or quasi-equity if drawn, further subordinating this capital to senior lenders.

The cost overrun facility fits the shared-risk philosophy of alliance and IPD models. It does not require identifying a single party responsible for cost growth; rather, it provides a pool of capital to address cost increases regardless of cause, aligning with the "no blame" culture of collaborative contracting while giving lenders a defined mechanism to address budget exceedances.

The layered credit enhancement approach discussed in Section 6.3 (Catalytic Capital Structures) is directly applicable to cost overrun facilities. Rather than relying on a single cost overrun facility in isolation, the facility can be integrated within the broader capital protection architecture described above: a first-loss tranche (funded by government, a DFI, or the project sponsors) absorbs initial cost growth; the cost overrun facility itself provides committed funds for growth in excess of the first-loss layer; and a guarantee or insurance facility offers second-loss protection. A reserve account funded through excess project income during the operational phase provides a further self-sustaining layer that replenishes over time. The combination of these instruments may, in appropriate circumstances, be sufficient to achieve a credit profile that supports an indicative or formal credit rating for the project's senior debt, a mechanism that has been used in blended finance to achieve investment-grade ratings for otherwise sub-investment-grade opportunities, and that could unlock institutional investor participation in collaboratively delivered infrastructure.

Contractor/sponsor equity bridge financing

Under contractor/sponsor equity bridge financing, the design-builder consortium or its equity sponsors fund construction, accepting construction risk on their balance sheets in exchange for long-term equity returns. At substantial completion, the project is refinanced with conventional project finance debt against the operational revenue stream. This resembles DBF but is structured as equity or quasi-equity, preserving upside participation while accepting downside exposure during construction. Consortium sponsors may also finance their commitment through external borrowing, though this would require security outside of (or in addition to) their project interest.

The financing is typically documented through shareholder agreements and subscription commitments obligating each consortium member to fund its pro rata share of construction costs. These commitments may be secured by parent company guarantees or other credit support. The consortium may also establish internal credit facilities or cash pooling arrangements to manage capital call timing and provide construction-phase liquidity.

The structure addresses the fundamental lender challenge by deferring third-party debt until the project has demonstrated successful completion and is generating stable operational revenues.

For collaborative delivery, the structure offers clear advantages: it removes the need to satisfy lender bankability requirements during construction, allowing the integrated team to operate under pure alliance or IPD principles without lender step-in rights, prescriptive subcontracting requirements, or other credit-driven restrictions. It also aligns contractor financial interests with project success, because contractors funding construction with their own capital have a direct incentive to deliver on time and on budget.

However, this structure requires consortium members to have sufficient balance sheet capacity to fund major construction projects, which may limit the contractor pool. Large infrastructure projects requiring hundreds of millions or billions of dollars may exceed many construction firms' capacity, making the structure most suitable for moderate-scale projects or consortia including well-capitalized sponsors such as infrastructure funds, pension plans, or strategic investors.

Pricing must reflect the risk being assumed. Consortium members will require returns commensurate with construction-phase risk, potentially significantly higher than conventional project finance debt. Returns may be structured as a preferred return on equity, a promoted or carried interest payable upon refinancing, or an enhanced share of operational profits. The overall cost of capital should be evaluated on a whole-of-life basis, weighing higher construction-phase costs against potentially lower operational-phase debt costs and the benefits of an unconstrained collaborative model.

This approach has been deployed in renewable energy, where developers and contractors accept construction-phase risk for long-term equity returns, and in social infrastructure, where sponsors fund construction and subsequently sell or refinance completed assets to long-term investors. Applying it to collaborative delivery is a natural extension of these established practices.

Holdco financing

Holdco financing raises debt at a holding company level above the operational project company (Opco) or SPV, rather than at the project level itself. The Holdco does not directly own or operate the project's assets; it relies on distributions from the Opco to service holdco debt. While holdco structures have been widely used in infrastructure, conventional and renewable energy, and portfolio financings, they are generally more suited as a post-completion lever or complementary option than a standalone construction-phase solution.

In Canadian practice, Holdco leverage is typically reserved for post‑completion or portfolio contexts and should be sized conservatively for single‑asset greenfield projects, given distribution volatility and structural subordination to Opco debt.

In collaborative delivery, the appeal of holdco financing is the structural separation between the project delivery layer and the financing layer. The alliance or IPD contract governs the relationship between the government and NOPs at the Opco level, while the Holdco borrows on the strength of expected distributions once the project is operational. Holdco debt is structurally subordinate to any senior debt at the Opco level.

Holdco lenders do not interact with alliance internal governance. Security typically consists of a pledge over Holdco shares, an all-asset security over Holdco's own assets, and a charge over the distribution account. The enforcement remedy, foreclosing on Holdco shares, results in a change of ownership at the holding company level without stepping into the alliance or disrupting the integrated project team.

Holdco financing in a collaborative delivery context does, however, present significant challenges:

• First, the holdco lender depends entirely on distributions from the Opco. In a collaborative project with cost-plus remuneration, the quantum and timing of those distributions are uncertain during construction. If costs escalate, owner payments to NOPs increase, potentially reducing or eliminating distributable surplus. The holdco lender has no contractual claim against alliance participants.
• Second, the security package is inherently limited. Project assets and Opco revenue streams are pledged to senior financiers or retained by the government, so the holdco lender cannot take security over the project itself. Enforcing security over Holdco shares would likely trigger change-of-control provisions in Opco financing arrangements, potentially resulting in a mandatory prepayment event that could render the acquired equity interests of limited value.
• Third, holdco financing typically requires a final maturity extending beyond senior debt maturity and flexible interest payment provisions (including payment-in-kind (PIK) options) to accommodate periods when distributions are insufficient for cash debt service. This creates a more complex and expensive structure than conventional project finance.
• Fourth, given structural subordination and limited security, holdco debt commands a significantly higher cost of capital than senior project finance debt. In a collaborative delivery context, where the absence of a fixed-price construction obligation introduces additional uncertainty, the pricing premium could be materially higher.
• Fifth, and most critically, holdco financing does not resolve construction-phase bankability issues. During construction, there may be no distributions flowing to the Holdco, meaning debt could only be serviced from equity contributions or capitalized interest reserves. The holdco lender would effectively be taking a view on long-term revenue-generating capacity without a fixed-price contract to cap cost risk-acceptable for brownfield acquisitions but a materially higher risk proposition for greenfield collaborative projects.

Notwithstanding these challenges, holdco financing could play a useful role in specific circumstances. Where a collaboratively delivered project has reached substantial completion and is generating stable operational revenues, a holdco loan could provide additional leverage, fund sponsor distributions, or finance follow-on investments (to finance cost overruns paid with equity, for instance). In this post-completion scenario, construction-phase risks would have been resolved and the holdco lender would underwrite based on demonstrated cash-generating capacity.

Alternatively, holdco financing could complement a Progressive P3 or Alliance PPP framework. In an Alliance PPP where the government finances construction and the SPV receives quarterly service payments during operations, a holdco lender could provide additional leverage above the SPV level, secured against the SPV's equity and its right to receive distributions after senior debt service.

Holdco financing is therefore most likely viable for operational-phase leverage on completed collaborative projects, or as a complementary financing layer within an Alliance PPP or Progressive P3 structure, rather than as a standalone solution for construction-phase financing of greenfield projects.

Other practical structuring strategies

Practical strategies can enhance bankability within a collaborative framework, falling into three broad categories: cost discipline mechanisms that give lenders confidence in budget outcomes, lender protection mechanisms that preserve enforcement rights, and team integrity mechanisms that address the practical challenges of maintaining an integrated delivery team. These categories are not exhaustive and the strategies within them are not mutually exclusive.

A note of caution: these modifications do not erase the core tension between shared-risk governance and enforcement-oriented project finance. No amount of contractual engineering can fully reconcile a "no blame, no dispute" alliance with lender enforcement requirements. The aim is a workable, not perfect, fit. With that caveat, proposed modifications include:

1. Phased financial close: Structuring the financing so that financial close occurs at the end of the collaborative development phase, once a firm fixed price has been established. This is the approach used by the Progressive P3 model.

2. Affordability caps and target pricing: The public authority prescribes an affordability limit at selection and retains off-ramp options if costs exceed that cap, providing a further layer of cost discipline.

3. Technical assistance facilities: Adding a parallel technical assistance (TA) facility, funded through catalytic or project-level capital, that support project preparation, structuring, and capacity building. In the collaborative delivery context, a TA facility could fund the development-phase costs of alliance or IPD projects (including feasibility studies, open-book cost estimation, independent cost verification, and financial structuring advisory) that are necessary to bring a project to a bankable state before financial close. This is particularly relevant for the Progressive P3 model, where the development phase requires significant upfront investment before a firm price can be established, and where the costs of that development phase may deter private participants if borne entirely (or in part) at risk.

4. Competitive lender processes: Lenders providing financing terms to the winning team (rather than to one of several shortlisted consortia) tend to produce sharper pricing.

5. Well-structured gain share/pain share regime¹¹: Lenders will scrutinize the pain share mechanism to ensure it creates meaningful cost control incentives and that participants have sufficient capacity to absorb their share of cost overruns. The regime should be structured so that participants' exposure is proportionate to their role, backed by parent company guarantees or fee retention, and calibrated with appropriate caps and floors to maintain participant viability and avoid moral hazard.

6. Prescriptive subcontracting regime: Key subcontracts should be identified at financial close, with subcontractors meeting specified technical and financial criteria and changes requiring lender consent. This enables lenders to assess capability and creditworthiness of parties performing critical work. In a collaborative context, this must be balanced against the need for flexibility, though lenders will expect baseline prescription for critical-path and high-value work packages.

7. Reserved powers and deadlock-breaking mechanisms: Lenders require the ability to protect their interests when the integrated team cannot reach consensus or performance is materially deficient. Reserved powers may include approval rights over scope, budget, or schedule changes above defined thresholds, rights to require removal of key personnel or subcontractors, and rights to appoint independent monitors. Deadlock-breaking mechanisms may include escalation to senior representatives, referral to independent experts, or lender step-in rights in serious cases. These must be designed sensitively but clearly defined and enforceable.

8. Carving out lender step-in rights from "no dispute" clauses: The alliance's dispute waivers could be preserved as between members but carved out to permit the lender to enforce against the SPV and exercise cure, step-in, or novation rights. However, introducing lender enforcement rights would require a parallel dispute resolution regime that may sit uncomfortably alongside the alliance's consensus-based governance.

9. Substitute entity/novation mechanism: The lender could be granted the right to nominate a replacement for a defaulting partner, subject to alliance board approval (with agreed limitations). This assumes a replacement member with sufficient knowledge and expertise is available in the market and can integrate without disrupting the team.

10. Performance guarantees and capped liability: Individual alliance members could provide performance guarantees (parent company guarantees or performance bonds) outside the alliance agreement as additional lender security. However, this effectively requires individual members to accept liability for collective performance, the antithesis of shared risk.

11. Ring-fencing revenue streams and lender-controlled accounts: Project revenues (construction payments, availability payments, user charges) would flow through lender-controlled accounts with cash waterfall mechanisms, debt service reserve accounts, and lock-up provisions. This is feasible and does not conflict with the alliance structure, as it operates at the SPV/financing level. If the SPV receives a revenue stream from the government, the lender can take security over it without interfering with the alliance's internal governance.

Capital stack optionality: Structuring for the whole-of-project capital formation

A recurring challenge is that key project documents (the alliance or IPD agreement, material project contracts, and the financing and equity documentation) are often drafted with a single financing structure in mind. When the capital stack subsequently evolves, the existing documentation may prove insufficiently flexible to accommodate changes without triggering amendment processes, consent requirements, or the reopening of settled terms. Drafting the foundational documents from the outset with a view to the full range of potential capital stack participants and structures preserves optionality and minimizes the need for subsequent renegotiation. The following modifications address discrete elements of this approach.

1. Holistic review of project documents with the full capital stack in mind: When reviewing and settling the main project agreement (whether an alliance contract, IPD agreement, or PDB contract), material project documents (including subcontracts, interface agreements, independent certifier appointments, and government support agreements), and the financing and equity structure (including intercreditor arrangements, security packages, and equity subscription agreements), advisors and stakeholders should consider the project as a whole, taking into account all potential capital stack elements. This means that the drafting of representations, warranties, covenants, events of default, step-in rights, and consent and approval mechanisms should not be tailored exclusively to the requirements of a single senior lender or a single class of equity. Instead, these provisions should be drafted with sufficient breadth and flexibility to accommodate additional layers of capital, without requiring material amendments to the underlying project documents or the reopening of negotiated commercial terms. Where practicable, the documentation should include pre-agreed framework provisions (such as permitted debt baskets, accordion features, and reserved capacity within security packages) that allow for the introduction of additional capital providers on terms consistent with the existing financing arrangements.

2. Broad confidentiality provisions and consent to disclose: Confidentiality regimes in alliance and IPD contracts, as well as in financing documents, are typically drafted to govern information flows between the immediate contracting parties. However, where the capital stack includes, or may in the future include multiple classes of debt providers, equity co-investors, development finance institutions, export credit agencies, rating agencies, insurers, hedging counterparties, and potential secondary market purchasers, the confidentiality provisions must be broad enough to permit the flow of project information to all current and prospective capital stack participants. This requires, at a minimum, that the definition of permitted disclosees in both the project agreement and the financing documents expressly includes each category of potential capital provider, together with their advisors, agents, and representatives. Consent-to-disclose provisions should be drafted on an anticipatory basis, permitting disclosure to future financing parties without requiring case-by-case consent from participants. Particular attention should be given to open-book accounting data, cost reporting, technical reports, and performance information (the very categories of information that lenders, rating agencies, and institutional investors will require for credit assessment, ongoing monitoring, and secondary market trading). Failure to address this at the outset can result in information bottlenecks that delay or prevent the introduction of additional capital, or require amendments that reopen settled terms.

3. Reliance on third party reports: In project finance transactions, lenders rely on a suite of independent reports (including technical advisors’ reports, environmental and social impact assessments, insurance advisors’ reports, model auditors’ reports, legal opinions, and market studies) as a condition of committing capital. These reports are typically addressed to, and may only be relied upon by, the parties identified in the reliance letter or engagement terms. In a collaboratively delivered project where the capital stack may include multiple layers of debt, equity, and quasi-equity providers (each of whom requires independent assurance as to the project’s technical, environmental, legal, and financial profile), it is essential that the engagement terms for all consultants, technical advisors, and experts appointed in connection with the project are drafted from the outset to permit reliance by all current and reasonably anticipated capital stack participants. Drafting reliance provisions on an inclusive and anticipatory basis avoids the need to renegotiate consultant engagement terms or commission duplicate reports each time a new capital provider enters the structure, a process that is costly, time-consuming, and may create inconsistencies between reports commissioned at different stages of the project. Where consultants are unwilling to extend reliance to an open class of beneficiaries, the engagement terms should at a minimum include a mechanism for extending reliance to additional parties on pre-agreed terms and conditions, including appropriate liability caps and limitations.

4. Additional provisions to preserve optionality and limit amendments: Beyond the foregoing, a number of further drafting strategies should be adopted to maximize capital stack flexibility and minimize the need to reopen negotiated terms. The most critical strategies are: (a) defining financing parties broadly in the project agreement using functional categories rather than named entities, so that the addition of new capital providers does not require amendments to project-level documentation; (b) including pre-approved refinancing and additional indebtedness provisions with clearly defined permitted debt conditions, enabling the borrower to raise additional capital without fresh consent from all existing stakeholders; (c) drafting assignment and transfer provisions to facilitate debt trading, loan syndication, and secondary market transfers without triggering consent requirements or change-of-control provisions; and (d) structuring security packages and intercreditor agreements to accommodate multiple layers of secured and unsecured creditors from the outset, with future accession on pre-agreed terms. Supporting these core strategies, the documentation should also address: flexible reporting and information covenant frameworks satisfying diverse capital provider monitoring requirements; alignment of key defined terms, conditions precedent, and event-of-default triggers across all project, financing, and equity documents; insurance program provisions that name, or include a mechanism to name, all current and future capital stack participants; project accounts and cash waterfall structures designed for multiple creditor classes; broadly drafted consent-to-financing provisions covering refinancings, bond issuances, and capital structure changes; pre-agreed hedging frameworks with ISDA-ready provisions and intercreditor treatment of hedge providers; dispute resolution clauses permitting joinder or consolidation of multiple capital stack participants; pre-agreed frameworks for green, social, or sustainability-linked financing instruments; and a permanent virtual data room with standing access protocols for prospective capital participants.
   

Schedule “A”

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1. Introduction
2. Why does financing remain necessary under collaborative delivery?
3. What is bankability? 
4. What are the collaborative delivery models? 
5. Core principles of collaborative delivery models 
6. Core principles of traditional project finance 
7. The issues between collaborative delivery models and traditional project finance 
8. Available solutions and potential structuring 
9. Conclusion

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