Concession (contract)
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A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.
Public services A public service is any Service (economics), service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through pub ...
such as
water supply Water supply is the provision of water by public utilities, commercial organisations, community endeavors or by individuals, usually via a system of pumps and pipes. Public water supply systems are crucial to properly functioning societies. Thes ...
may be operated as a concession. In the case of a public service concession, a private company enters into an agreement with the government to have the exclusive right to operate, maintain and carry out
investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
in a public utility (such as a
water privatisation Water privatization is short for private sector participations in the provision of water services and sanitation. Water privatization has a variable history in which its popularity and favorability has fluctuated in the market and politics. One ...
) for a given number of years. Other forms of contracts between public and private entities, namely lease contract and
management contract A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee. Management contracts involve not just sell ...
(in the water sector often called by the French term ''affermage''), are closely related but differ from a concession in the rights of the operator and its remuneration. A lease gives a company the right to operate and maintain a public utility, but investment remains the responsibility of the public. Under a management contract the operator will collect the revenue only on behalf of the government and will in turn be paid an agreed fee. A grant of land or a property by the government may be in return for services or for a particular use, a right to undertake and profit by a specified activity, a lease for a particular purpose. A concession may include the right to use some existing
infrastructure Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and priv ...
required to carry out a business (such as a
water supply system A water supply network or water supply system is a system of engineered hydrologic and hydraulic components that provide water supply. A water supply system typically includes the following: # A drainage basin (see water purification – sourc ...
in a city); in some cases, such as
mining Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...
, it may involve merely the transfer of exclusive or non-exclusive
easement An easement is a nonpossessory right to use and/or enter onto the real property of another without possessing it. It is "best typified in the right of way which one landowner, A, may enjoy over the land of another, B". An easement is a propert ...
s. In the private sector, the owner of a concession — the ''concessionaire'' — typically pays either a fixed sum or a percentage of revenue to the owner of the entity from which it operates. Examples of concessions within another business are
concession stand A concession stand (American English, Canadian English), snack kiosk or snack bar (British English, Irish English) is a place where patrons can purchase snacks or food at a cinema, amusement park, zoo, aquarium, circus, fair, stadium, b ...
s within sporting venues and movie theaters and concessions in
department stores A department store is a retail establishment offering a wide range of consumer goods in different areas of the store, each area ("department") specializing in a product category. In modern major cities, the department store made a dramatic appea ...
operated by other
retailer Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
s. Short term concessions may be granted as promotional space for periods as short as one day. Concession agreement may also state the role of an authority and concessionaire and conditions regarding control and ownership of the assets and facilities such as concession can either allow the authority to retain or keep actual ownership of the assets, turning over to the concessionaire and reverting the control and ownership back to an authority once the duration of their concession ended or both the authority and concessionaire control and own the facilities, and the assets and facilities that were built, designated, and acquired prior to the turnover of operations and maintenance from the authority to the concessionaire and are included on a plan of a project that was planned by an authority are predetermined as owned by the authority and to be operated and maintained by the concessionaire upon the turnover of operations and maintenance of the facilities and assets to the concessionaire and those that were built, acquired and designated by the concessionaire may initially be owned and controlled by the concessionaire and these will be transferred to the authority once its concession duration is ended.


Early history

Muhammad Ali of Egypt Muhammad Ali Pasha al-Mas'ud ibn Agha, also known as Muhammad Ali of Egypt and the Sudan ( sq, Mehmet Ali Pasha, ar, محمد علي باشا, ; ota, محمد علی پاشا المسعود بن آغا; ; 4 March 1769 – 2 August 1849), was ...
used contracts called concessions to build cheap infrastructure - dams and railroads - whereby foreign European companies would raise capital, build projects, and collect most of the operating revenue but would provide Ali's government with a portion of that revenue. For other examples of concessions, see ''
Gibbons v. Ogden ''Gibbons v. Ogden'', 22 U.S. (9 Wheat.) 1 (1824), was a landmark decision in which the Supreme Court of the United States held that the power to regulate interstate commerce, which was granted to Congress by the Commerce Clause of the United Sta ...
'' and United States railroad policy.


European Union regulation

Within the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
, the granting of concessions by public bodies is subject to regulation. Works concessions have been subject to award rules for some time as Directive 2004/18/EC of the
European Parliament The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...
and of the
Council of the EU The Council of the European Union, often referred to in the treaties and other official documents simply as the Council, and informally known as the Council of Ministers, is the third of the seven Institutions of the European Union (EU) as ...
on
public procurement Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a sub ...
applied to works concessions. The award of services concessions with a cross-border interest has been subject to the principles of the
Treaty on the Functioning of the European Union The Treaty on the Functioning of the European Union (TFEU) is one of two treaties forming the Treaties of the European Union, constitutional basis of the European Union (EU), the other being the Treaty on European Union (TEU). It was previously ...
. The
European Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...
had originally included public concession contracts in the Services Directive of 1992, but these were removed from its scope by the European Council. However, the European Parliament and the Council issued a further Directive 2014/23/EU on the award of concession contracts on 26 February 2014,Directive 2014/23/EU of the European Parliament of the Council on the award of concession contracts
/ref> which required EU member states to introduce national legislation covering the award of concession contracts in excess of EUR 5,186,000 awarded on or after 18 April 2016. In the UK, the equivalent threshold for concession contracts is £4,104,394.


See also

* Public-private partnership *
Private finance initiative The private finance initiative (PFI) was a United Kingdom government procurement policy aimed at creating "public–private partnerships" (PPPs) where private firms are contracted to complete and manage public projects. Initially launched in 199 ...
*
Production sharing agreement Production sharing agreements (PSAs) or production sharing contracts (PSCs) are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extra ...


References

{{Authority control Business terms Distribution (marketing) Business models Rights European Union law