Christopher Brennan
Legal Director
Article
8
Welcome to the third bulletin in our changing landscape series where we examine the incoming changes to the public procurement regime in England, Wales and Northern Ireland by the Procurement Act 2023 (the Act).
Our last changing landscape bulletin covered the Act's coverage of utilities procurement. On this occasion, we will be examining the change of procurement law in relation to concession contracts.
As a recap, there are currently four different Statutory Instruments that regulate the procurement of public contracts. However, these are all set to be repealed in October, including the Concession Contracts Regulations 2016, and are to be replaced by the Act. This means that the law relating to concession contracts is set to change soon.
Concession contracts are split into two categories:
Under the Act, such a contract means a contract for the supply for pecuniary interest (this generally refers to consideration – whatever its nature) to a contracting authority. Such contracts have two key elements:
The parties will include at least one contracting authority and at least one economic operator. 'Operating risk' means that there is a risk that the supplier will not be able to recover its costs in connection with the supply and operation of the work or service. The factors that give rise to this risk will be reasonably foreseeable at the time of award and arise from matters outside the control of the contracting authority.
As there is a 'transfer' of real operating risk, this means that for the contract to be a concession contract, the operating risk must be transferred from the contracting authority to the supplier.
Conceptually, there is no real difference in the nature of a concession contract as envisaged by the Act, and a concession contract as envisaged by the current regime. While there are some differences in how the respective definitions are formulated, both in substance envisage a contract where there is a transfer of real operating risk to the supplier, such that the supplier is exposed to market vagaries and must therefore make the contract "pay" by exploiting its subject-matter in order to derive revenue. The revenue arising from this exploitation need not be the supplier's only income stream from the concession contract; part of the consideration can come from payment by the contracting authority just as it would in an ordinary public contract. However, a contract will only be a concession if there is a transfer of real operating risk to the supplier.
Typically, contracts which are procured as concessions include contracts to run assets to which the paying public have access – such as swimming pools, leisure centres and sporting events in which the public can pay to participate – and also contracts to operate publicly exploitable infrastructure such as toll roads or bridges.
However, the Act will not apply to all concession contracts. There is a value threshold that needs to be met before a contract must be procured in accordance with the Act. For concession contracts, the value threshold is expected to be £5,372,609 (inclusive of VAT). This will be the same as the value threshold of (inclusive of VAT) that applied under the Concession Contracts Regulations 2016. Schedule 1 to the Act currently sets the threshold at £5,336,937, which applied to concession contracts prior to the revision of thresholds on 1 January 2024; the Act will therefore require updating. In any event, the threshold means that only sizeable concession contracts will be caught by these rules.
Those concession contracts that do not meet this threshold are called below-threshold contracts. Unlike some other forms of contracts, below-threshold concession contracts are excluded from the category of 'regulated below-threshold contract.' This is rather advantageous when it comes to awarding a concession contract whose expected value is under the threshold, because regulated below-threshold contracts must comply with additional rules such as:
Another key takeaway is that concession contracts are not tightly regulated by the Act. The light regulation in this area is highlighted by the number of times that the Act states that certain rules do not apply to concession contracts. The following points are worth noting:
If a comparison is made between the Concession Contracts Regulations 2016 and the Act, it is evident that concession contracts continue to be regulated less strictly than other forms of public contract and, arguably, even less heavily than concessions under the existing regime. The Act's approach to concession contracts should therefore be broadly welcomed by contracting authorities and by would-be concessionaire suppliers.
If you have any questions or need support with navigating these latest developments, contact Christopher Brennan, Alison Richards, Alexi Markham or Robert Breedon.
Thank you to Athar Mirza for his assistance in preparing this article.
Footnotes
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