concession contract

A concession contract is a public contract where the supplier is not paid a fixed fee, but instead receives the right to commercially exploit the works or services delivered. Revenue typically comes directly from end users — through parking fees, ticket sales, or tolls — rather than from the contracting authority.

How does a concession contract differ from a standard public contract?

The defining distinction is the transfer of operating risk. In a standard procurement contract, the contracting authority pays the supplier an agreed price. In a concession, the supplier bears the risk — there is no guarantee of recouping the investment. If user demand falls short, the supplier absorbs the loss.

Under EU Directive 2014/23/EU, the risk must be genuine — not merely nominal. The supplier must face real exposure to market fluctuations, where financial loss is a realistic possibility under normal operating conditions.

Two types of concession contracts

• Services concessions — the supplier receives the right to exploit a service commercially. Examples include catering operations, leisure facilities, and public transport routes where revenue comes from users.
• Works concessions — the supplier finances and executes construction work and receives the right to exploit the result. Typical examples include toll roads, parking structures, and sports arenas.

Both types may include partial payment from the contracting authority, as long as significant operating risk remains with the supplier. The duration should generally not exceed five years, unless investments require a longer payback period.

Assessment for suppliers

Before submitting a bid on a concession contract, it is essential to analyse market fundamentals — users' willingness to pay, expected demand, and projected operating costs. The Concession Contracts Regulation gives contracting authorities significant flexibility in structuring the competition, and contests are published as contract notices on TED when the value exceeds the EEA threshold. Tools like Cobrief make it easier to discover such opportunities.

Concession contracts represent a different business model from standard public contracts. The potential for both profit and loss rests with the supplier, making a thorough risk assessment essential before pursuing a concession opportunity.