Concession (contract)

Last updated on 12 August 2017

A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.[1]

Public services such as water supply may be operated as a concession. In the case of a public service concession, a private company enters into an agreement with the government to have the exclusive right to operate, maintain and carry out investment in a public utility (such as a water privatisation) for a given number of years. Other forms of contracts between public and private entities, namely lease contract and management contract (in the water sector often called by the French term affermage), are closely related but differ from a concession in the rights of the operator and its remuneration. A lease gives a company the right to operate and maintain a public utility, but investment remains the responsibility of the public. Under a management contract the operator will collect the revenue only on behalf of the government and will in turn be paid an agreed fee.

A grant of land or property by a government may be in return for services or for a particular use, a right to undertake and profit by a specified activity, a lease for a particular purpose. A concession may include the right to use some existing infrastructure required to carry out a business (such as a water supply system in a city); in some cases, such as mining, it may involve merely the transfer of exclusive or non-exclusive easements.

In the private sector, the owner of a concession — the concessionaire — typically pays either a fixed sum or a percentage of revenue to the owner of the entity from which it operates.[2] Examples of concessions within another business are concession stands within sporting venues and movie theaters and concessions in department stores operated by other retailers. Short term concessions may be granted as promotional space for periods as short as one day.

On regular concessions which are based on traditional French concessions, asset ownership remains with the authority and an awarding authority is responsible for the replacement of larger assets unlike with build-operate-transfer, build-own-operate-transfer, and outright sale, all of which are allowed the concessionaire to actually or permanently own the assets. An example of this is the franchise of National Grid Corporation of the Philippines (NGCP) in which despite that the company operates, builds, expands, and maintains the country's transmission assets since 2009, they are still Philippine government or state-owned through the National Transmission Corporation (TransCo), according to Section 8 of the Electric Power Industry Reform Act (EPIRA) or Republic Act 9136 which states that no other entity, person, or company other than the government or TransCo who shall own any transmission facilities.[3][4][5] Both of them will revert to the authority after a concession period, including assets purchased by a concessionaire. Sometimes, an operator and authority can both own the facilities.

European Union regulation

Within the European Union, the granting of concessions by public bodies is subject to regulation. Works concessions have been subject to award rules for some time as Directive 2004/18/EC of the European Parliament and of the European Council on public procurement applied to works concessions, and the award of services concessions with a cross-border interest has been subject to the principles of the Treaty on the Functioning of the European Union. However, the European Parliament and the European Council issued a further Directive 2014/23/EU on the award of concession contracts [6] on 26 February 2014 which required EU member states to introduce national legislation covering the award of concession contracts in excess of EUR 5,186,000 awarded on or after 18 April 2016.

In the UK, the threshold for concession contracts is £4,104,394.

See also

References

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