Tim Care and Melanie Pears look at what a public concession contract is and recent changes made to the applicable procurement regime.
The Cabinet Office recently issued the draft Concessions Contracts Regulations 2016, which can be viewed here.
In simple terms, a concession contract is one where a Contracting Authority or Utility grants a contract for works or services to a third party and the consideration involved, rather than being a direct payment from the Contracting Authority or Utility, consists solely of the right to exploit the work or service (or sometimes these rights in addition to receiving a payment).
To qualify as a concession contract, it must also involve the transfer to the third party (or “concessionaire”) of an operating risk in exploiting the service which, at least in part, “involves real exposure to the vagaries of the market”, such that any potential estimated loss is not merely nominal or negligible.
In practice, this requirement is met where the concessionaire is not guaranteed to recoup its investment in supplying the works or services which form the subject matter of the contract.
Under the new Concession Contracts Regulations important points include:
- For the first time, concession contracts for both works and services are covered by the regime. Previously, public service concession contracts were not formally regulated.
- The regulations will apply only to contracts over €5,186,000 in value, a relatively high threshold.
- Even where the value of the concession contract concerned is below the threshold, remember that treaty principles should be applied where they could generate cross-border interest.
- The procedural requirements of the directive are implemented in the regulations in a largely unchanged form following government’s policy of not “gold plating” the requirements.
- In addition to the rules related to the procurement procedure itself, Contracting Authorities should be aware of other issues covered by the regulations; this includes new rules governing the electronic availability of concession documents and communication, modifications of contracts during their term and the inclusion of termination provisions (either expressly or implied).
- The remedies regime that applies is very similar to that under the Public Contracts Regulations 2015.
Why is it important?
These regulations will be important to any Contracting Authorities or Utilities who are considering using concession contracts to deliver works or services. Especially important to note is that for the first time, there is a formal regime for concession contracts for services and this may mean that some additional arrangements will be caught from the commencement date of 18 April 2016.