Concession Contract

A concession contract is a specific type of public contract regulated under the EU Concessions Directive (2014/23/EU) in which a contracting authority grants an economic operator the right to operate a works or service concession. The defining feature is that the operator assumes a substantial share of the operating risk, typically by earning revenue from users of the service rather than from the authority through guaranteed payments.

What is a Concession Contract?

The EU draws a legal distinction between a standard service or works contract (where the authority pays the contractor for a defined output) and a concession (where the contractor earns revenue by exploiting the works or service). Classic examples include toll road concessions, airport operating concessions, port concessions, and public utility service concessions. The threshold above which the Concessions Directive applies is approximately EUR 5,538,000, the same as the works threshold under the main Public Procurement Directive. Above this value, the authority must publish a contract-notice on ted and run a competitive procedure, though the specific procedural requirements under the Concessions Directive are less prescriptive than those under the standard directives.

The risk transfer element is essential to the classification. If the authority guarantees payments that fully insulate the operator from demand or availability risk, the arrangement is a service contract, not a concession, and falls under the main Public Procurement Directive.

Why Concession Contracts matter for bidders

Concession contracts offer a different commercial proposition from standard public contracts: rather than billing for delivery, the operator earns a revenue stream (and bears the associated risk) over a long concession period, often 15 to 30 years. For suppliers with the financial capacity to absorb demand risk, concessions provide long-term income visibility that service contracts rarely match. The competitive-dialogue procedure is frequently used for concession awards because the financial and risk-sharing structure is genuinely complex and benefits from dialogue before a specification is fixed. Suppliers evaluating concession opportunities need to model user demand, maintenance costs, and financing costs over the full concession period, not just the cost of a specific deliverable.

FAQ

What distinguishes a concession from a normal services contract?

The key distinction is risk. In a concession, the operator assumes a substantial share of demand or availability risk and earns revenue primarily from users. In a standard services contract, the authority pays the contractor directly and absorbs the revenue risk itself.

Does the EU Concessions Directive apply to utilities?

Yes. Both works and service concessions in the utilities sectors (water, energy, transport, postal) above the EUR 5,538,000 threshold are covered by the Concessions Directive, not the Utilities Directive.

How long can a concession contract last under EU rules?

There is no absolute maximum, but the Concessions Directive requires that the duration be limited to the time reasonably needed for the concessionaire to recoup its investment and earn a return on the invested capital. Very long concessions may be considered disproportionate.