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EU begins countdown for control over concession contracts

Monday July 22nd, 2013

On 26 June 2013, political agreement was reached within the EU on the new Public Procurement Directive governing the award of concession contracts.

A concession contract is an agreement between a public body and a contractor where the contactor is given the right to exploit works or services and receives some or all of the consideration for their services from third parties. To qualify as a concession, the contractor must bear a substantial part of the economic risk associated with carrying out the works or services. There are two types of concession contracts – works concessions (e.g. developing, operating and maintaining a motorway or bridge) and services concessions (e.g. waste disposal services, energy supply).

Jill Fryer

Jill Fryer

The current public procurement regime only partly applies to works concessions and does not apply to services concessions. The European Commission proposed the Concessions Directive because it considered that these contracts (which are often long-term and high-value) were often awarded without any transparent or competitive process.

The draft Concessions Directive only fully applies to concession contracts of more than €5m.  Limited obligations apply to other types of concession contracts such as services concessions of a value between €2.5m and €5m. The draft directive provides that concession award criteria must be objective to ensure an overall economic advantage, but environmental, social and innovation-related criteria can be included. If a contractor repeatedly fails to comply with environmental, social or employment law obligations, public authorities can refuse to grant concession contracts to it.

Formal approval of the draft directive is scheduled for October 2013. Once the proposed directive is finally adopted, Member States will have 18 months to transpose it into national law.

Once the Concessions Directive has been adopted at EU level and implemented into national law, contracting authorities will require to comply with its detailed provisions when awarding concession contracts to which it relates. Although many contracting authorities currently advertise concession contracts in the OJEU as a matter of best practice and to ensure appropriate advertising, they are not currently bound by detailed rules regarding timescales, award criteria and procedural matters when running a competition for a concession contract. Given that the Remedies Directive is to be extended to cover concession contracts, failure to comply with these new detailed rules when awarding a concession contract could expose contracting authorities to the risk of challenge to their concession award decisions.

Although the Concessions Directive will not apply retrospectively, contracting authorities should remember that the extension of, or substantial amendment to, an existing concession contract may constitute a new concession contract for the purposes of the new concessions rules.

Jill is an Associate with Harper Macleod LLP and can be contacted at jill.fryer@harpermacleod.co.uk

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