Saturday, 13 December 2008

EU procurement: Public works concessions

We look at the definitions concerning public works concessions in the Procurement Directive 2004/18/EC.


Public works concession

The public works concession is defined in Article 1.3 of the Procurement Directive:

3. ‘Public works concession’ is a contract of the same type as a public works contract except for the fact that the consideration for the works to be carried out consists either solely in the right to exploit the work or in this right together with payment.



The definition of public works contracts in Article 1.2(b) offers common ground with public works concessions:

(b) ‘Public works contracts’ are public contracts having as their object either the execution, or both the design and execution, of works related to one of the activities within the meaning of Annex I or a work, or the realisation, by whatever means, of a work corresponding to the requirements specified by the contracting authority. A ‘work’ means the outcome of building or civil engineering works taken as a whole which is sufficient of itself to fulfil an economic or technical function.



The public works concession differs from the public works contract in that the consideration for the works to be carried out consists either solely in the right to exploit the work or in this right together with payment.

Title III of the Procurement Directive, comprising Articles 56 to 65, sets out the rules on public works concessions, but concessions with a value of less than 5 150 000 euros remain under the threshold.

The European Commission’s Guide to Community rules on public works contracts (based on the old Directive) starts its treatment of public works concessions by stating that in view of their specific nature, public works concessions are subject only to advertising rules designed to introduce some transparency in this field. It later goes on to explain the difference in remuneration on page 61:

For the purposes of the Directive, a public works concession is the same as a public works contract, except that the consideration is usually in the form of the right to exploit the works but is sometimes pecuniary as well.

The key element in determining whether a public works contract or concession is involved is the form that the consideration takes. For the works to be classed as a concession, consideration must consist, at least in part, of the right to exploit the works, i.e. of the profit which the concessionaire, depending on his ability to manage the project, will gain from that right.

It is of little importance whether the revenue from that management is handled physically by the awarding authority or by the concessionaire; what matters is that all or part of such revenue is paid to the latter in consideration for the works.

Depending on the management terms prescribed by the awarding authority, the latter may guarantee the concessionaire a minimum income.

However, were the authority to remunerate the concessionaire with fixed - e.g. monthly or annual - sums in consideration for the works and for the management activity, without such remuneration being in any way proportional to the management revenue, the contract would not be a concession but a public works contract, the scope of which included, in addition to the execution of the works, provision of the requisite services for managing the project. In such a case, the “right to exploit the works” would no longer be meaningful since the risks and benefits associated with exploitation would in reality be retained by the contracting authority.

Ralf Grahn