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Concessions under Community law

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Concessions differ from public contracts in the transfer of the responsibilities of operation that they entail. The European Commission identifies the specific characteristics of works and service concessions. It specifies the rules and principles applicable to this type of contract under the Treaty and secondary legislation, as well as the Court of Justice case law.

ACT

Commission interpretative communication on concessions under Community law [Official Journal C 121 of 29.04.2000]

SUMMARY

The Treaty establishing the European Community does not define concessions *. It is only Directive 93/37/EEC on public works contracts * that lays down specific provisions for works concessions. Service concessions, however, which have developed in practice in several Member States, are subject to the rules and principles of the EC Treaty.

SCOPE

This communication addresses concessions in which a public authority entrusts a third party with the total (or partial) management of an economic activity which is normally the authority's responsibility and for which the third party assumes the operating risk.

The communication does not concern:

  • acts whereby a public authority authorises the exercise of an economic activity.
    Examples: taxi concessions, authorisations to use the public highway (newspaper kiosks, café terraces), or acts relating to pharmacies and filling stations;
  • acts concerning non-economic activities such as compulsory schooling or social security.

Relationships between public authorities and public enterprises entrusted with the operation of services of general economic interest are, in principle, covered by this communication. The Community law on concessions does not cover interorganic or "in-house" relationships that specifically mean that the awarding authority exercises over the concessionaire a control which is similar to that which it exercises over its own departments and carries out the essential part of its activities with that party.

Works concessions

Directive 93/37/EEC distinguishes a works concession from a public works contract by the fact that the concessionaire is granted the right to exploit a construction as a consideration for having erected it. The existence of an exploitation risk related to the investment made is the determining factor. This right of exploitation may also be accompanied by payment.

The right of exploitation implies the transfer of the responsibilities of operation from the grantor to the concessionaire. These responsibilities cover the technical, financial and managerial aspects of the construction. For example, the concessionaire is responsible for making the investments required so that the construction is available to users under good conditions. He is responsible for paying off the construction and bears the risks inherent in the construction, management and use of the facilities.

The right of exploitation allows the concessionaire to demand payment, over a certain period of time, from those who use the structure erected and/or other forms of remuneration from exploitation, such as tolls, fees or "shadow tolls". The fact that the right of exploitation may be accompanied by payment does not change if the sum paid covers only a part of the cost of the construction. It can happen that a State bears part of the costs of operating the concession in order to keep prices down for users. This partial remuneration can take the form of a flat rate amount or a sum paid on the basis of the number of users. This partial remuneration should not, however, have the effect of eliminating the risk inherent in exploitation that is borne by the concessionaire - otherwise it will be reclassified as a public works contract.

Service concessions

Directive 92/50/EEC on public service contracts does not define service concessions. The new Directive 2004/18/EC defines service concessions as contracts of the same type as a public service contract except for the fact that the consideration for the provision of services consists either solely in the right to exploit the service or in this right together with payment. Service concessions are, however, not subject to any detailed rules in the Directive.

Nonetheless, service concessions are subject to the principles and rules enshrined in the EC Treaty. A service concession exists when the operator bears the risks involved in establishing and exploiting the service. The operator obtains revenue from the user, particularly by charging fees. As is the case for works concessions, service concessions are characterised by a transfer of the responsibility of exploitation.

How does one determine which system applies in the case of mixed contracts involving works carried out and the provision of one or more services? In practice, this is in fact virtually always the case, since public works concessionaires often provide services to users on the basis of the structure they have built. If the main subject matter of the contract concerns the building of a structure on behalf of the grantor, it should be considered as a works concession. This is the case, for example, for a motorway or toll bridge. If the contract includes several elements that may be separated, the rules that apply to each should be applied separately. For example, motorway catering services may be the subject of a different service concession from that involving its construction or management.

COMMUNITY PROVISIONS APPLYING TO CONCESSIONS

The Treaty establishing the European Community prohibits any discrimination on grounds of nationality and establishes rules on the free movement of goods, the freedom of establishment, and the freedom to provide services. Works or service concessions are subject in particular to Articles 28 to 30 and 43 to 55 that are based on the following principles:

  • Equality of treatment.
    This principle implies in particular that all potential concessionaires know the rules in advance and that they apply to everybody in the same way. The Court has stipulated that in order to permit an objective comparison between offers, these offers should all conform to the tender specifications. And, if an awarding authority takes account of changes to a specific offer after the tenders are opened, the Court considers that the tenderer concerned has obtained an advantage. Provisions reserving public contracts only to companies of which the State or the public sector is a major, or the sole, shareholder contravene the principle of equality of treatment.
  • Transparency.
    The principle of transparency can be ensured by any appropriate means, including advertising, which contains the information necessary to enable potential concessionaires to decide whether they are interested in participating.
    In virtually all the Member States, the administrative rules or practices provide that the awarding authorities must make their intention public before launching a concession. In its Telaustria judgment, the Court of Justice of the European Union reiterates the awarding authority's obligation to guarantee all potential tenderers a proper degree of advertising in awarding concessions.
  • Proportionality.
    According to the principle of proportionality, any measure chosen should be both necessary and appropriate in the light of the objectives sought.
    With regard to concessions, a Member State may not impose technical, professional or financial conditions that are excessive and disproportionate when selecting candidates. Nor should the duration of the concession be set in such a way that it limits open competition beyond what is required to ensure that the investment is paid off and there is a reasonable return on invested capital, whilst maintaining a risk inherent in exploitation by the concessionaire.
  • Mutual recognition.
    According to the principle of mutual recognition, a Member State must accept the products and services supplied by economic operators from another Member State. It must also accept the technical specifications, checks, diplomas, certificates and qualifications required in another Member State if these are recognised as equivalent.

The Treaty provides for certain exceptions to the principles of the freedom of establishment and the freedom to provide services. For concessions, these exceptions are limited to cases covered by Article 45 of Treaty, such as those in which the concessionaire directly and specifically exercises official authority. As such, activities said to be in the "public interest" or carried out by virtue of an obligation or an exclusivity established by law are not therefore automatically covered by this exception.

Justifying decisions to refuse a tender

In the case of concessions, the awarding authority must give reasons for refusing or rejecting an offer so that any tenderer who considers that he/she has suffered damage can open an appeal procedure.

Directive 89/665/EC on review procedures for public works contracts applies to works concessions.

Directive 93/37/EEC on works concessions establishes specific advertising rules

Upstream, all awarding authorities must publish a public works concession notice in the Official Journal of the European Communities in order to put this contract up for competition at European level. This advertising rule applies irrespective of the nature of the potential concessionaire.

Downstream, there is the problem of contracts awarded by the concession contract holder. Everything depends on the legal nature of the concessionaire:

  • if the concessionaire is itself an awarding authority, contracts for works which are over the Community threshold must be awarded in full compliance with all the detailed provisions of the Directive on public works contracts;
  • if the concessionaire is not an awarding authority, the Directive stipulates that he/she must comply only with certain advertising rules.
    These rules are not applicable if the works contracts are awarded to grouped or affiliated undertakings.

Key terms used in the act
public contract: contract for pecuniary interest concluded in writing between a contracting body and an economic operator, which has as its object the execution of works, the supply of products or the provision of services.
(works or service) concession: a contract which differs from a public contract in that the source of revenue for the economic operator consists either solely in the right of exploitation or in this right together with payment.

RELATED ACTS

Green Paper on public-private partnerships and Community law on public contracts and concessions [COM(2004) 327 final - Not published in the Official Journal].
Public-private partnerships (PPPs) re-define the relationship between the public and private spheres. This Green Paper takes stock of existing practices in the European Union from the perspective of Community legislation. In letting those involved express their views, it launches a debate on whether a specific legal framework should be drawn up at European level. See the SCADPlus webpage on PPPs.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 12 May 2004 - White Paper on services of general interest [COM(2004) 374 final - Not published in the Official Journal].
Presented as a follow-up to the Green Paper on services of general interest, the European Commission White Paper sets out the approach adopted by the European Union to foster the development of high-quality services of general interest. It presents the main elements of a strategy aimed at ensuring that all citizens and enterprises in the Union have access to high-quality and affordable services. See the SCADPlus webpage on the White Paper.

Last updated: 22.10.2007
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