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Procuring service concession contracts
Trowers Public Insight

Procuring service concession contracts

Following our previous blog, in this instalment, we will examine the consequences of a contract falling within the definition of a concession. One of these consequences, which sets a maximum length for concession contracts, is particularly severe.

In our last blog, which you can view here,  we looked at service concession contracts and how they can be distinguished from ordinary public service contracts. We saw that they can encompass contracts to run services and facilities (such as leisure centres and theatres).

Traditionally, service concessions have been exempt from the detailed procurement rules laid down in the Public Contracts Regulations. However, authorities had to comply with EU treaty principles requiring transparency of the opportunity and equal treatment between interested parties whenever a concession contract could notionally be of interest to cross-border businesses.

This led to some confusion as to exactly what the procurement requirements were, and so a specific directive on the procurement of concessions was enacted, leading to the Concession Contracts Regulations 2016.

In many respects, the new regulations preserve the 'lighter touch' approach previously applied to concessions. So, for example:

  • The threshold is much higher. The threshold is set at £4,104,394 for both service and works concessions. The recitals to the directive also helpfully suggest that contracts below this value may not have cross-border interest. However, lower value concessions may still be subject to the treaty principles if there is evidence of cross-border interest.
  • The procurement procedure is less prescriptive. Authorities do not have to choose between standard procurement procedures (such as the restricted or competitive dialogue procedures) but have more flexibility to design a process of their own.

In other respects, the new regulations bring concession procurement more in line with the rules that we are used to for other contracts. So, for example, there is now a requirement to place a notice in the Official Journal at both the outset and at the end of a procurement exercise. There are now minimum timescales for the receipt of expressions of interest and tenders. More significantly, the full remedies regime for breaches of procurement law now applies, including declarations of ineffectiveness.

In one particular respect, however, the rules relating to concessions have become much tighter than those for other contracts. This is the rule that a concession contract cannot last longer than five years, unless the additional duration is required to recoup investments made or costs incurred by the concessionaire. There is no similar requirement for public contracts which are not concessions.

In some circumstances, this new rule can severely disrupt an authority's plans for a contractual arrangement and has led some of our clients to consider whether they wish to let a contract on concession terms at all. In some cases, changes to the proposals may mean that the contract becomes a standard public services contract. In some particular circumstances, it may be the case that the arrangement does not need to be a 'contract' at all.

To avoid any conflict with this maximum duration, it is now important to analyse any proposed long-term contractual arrangement to see whether or not it could be described as a concession.

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