Last edited 16 Feb 2021

Concession Contracts Regulations

[edit] Introduction

A concession contract is a contract between a company and a government; or between a contracting authority/utility company and an economic operator/other property owner to operate a business in a particular location.

A ‘contracting authority’ is defined as a ‘state, regional or local authority’ while a utility is defined as an entity that pursues one of the activities listed in Schedule 2.

Payment (or consideration) may come from the contractor exploiting the contractual right to profit from the arrangement or else by exploiting the contract for profit plus a payment from the contracting authority.

Under such contracts, the operating risk of exploiting the contract falls on the contractor, i.e. they must face the vagaries of the market whether connected to demand or supply or both. Any losses incurred by the concessionaire in these respects must be accepted. Furthermore, it is understood from the outset that there is no guarantee they will recoup their investments or the costs involved in operating the concession under normal operating conditions.

A typical example of a concession that might be the subject of a contract is a car park built on local authority-owned land, where the contract will be between the local authority (contracting authority) and the car-park operator. Either of these may involve a transfer of ownership to the contracting authority at some point in the future.

The Concession Contracts Regulations 2016 (“CCR 2016”) came into force on April 18 for concessions advertised in the Official Journal of the European Union (OJEU) (this may change after the UK leaves the EU). The regulations cover England, Wales and Northern Ireland, and regulate the process of procuring concessions’ contracts, with reference to contracts advertised in the journal by contracting authorities and utilities (e.g water companies power suppliers etc). They do not cover projects started before April 18 2016.2

Regulation 8 of the CCR 2016 suite of regulations stipulates a maximum threshold of €5,225,000. The regulation contains a defined procedure that sets out how to calculate the potential value of the concession. The value is determined by the contracting authority estimating the total amount turned over by the contractor/concessionaire over the contract term by operating the services that are the subject of the contract.

Works concession contract – i.e for the execution, or design and execution, of, and
Services concession contract—i.e for the provision and management of services (other than the execution of works).

Outsourcing contracts or privatisation;
Financing works or services e.g a grant;
If there is a choice for customers between providers delivering the same service;
A land lease contract;
Where an economic operator has a right to exploit public domains such as maritime, inland ports or the airport sector as these may involve general conditions for their use without the need to procure specific works and services;
Granting the right of way covering the use of public immovable property, fixed lines or networks;
Where no payments are made but the contract is remunerated on the basis of regulated tariffs calculated to cover all costs and investments borne by the concessionaire for providing the service. The concessionaire must be exposed to a potential loss;
Where the contracting authority or utility relieves the concessionaire of any loss by guaranteeing minimal revenue equal or higher to the investment made and the costs the economic operator has to incur, and
Where sector-specific regulations eliminate the risk by providing a guarantee to the concessionaire of breaking even in terms of the investments and costs incurred for operating the concession.