Extension of the duration of concession contracts: room for doubt

7 minute read
24 October 2016

The reform of the law on concessions implemented by order No. 2016-65 of 29 January 2016 on concession contracts (hereinafter "the Order") and its enacting decree amended a number of previously well-established rules. These included the rules on extending the duration of concessions.

Previously the subject of specific legislative provisions, extending the duration of concessions is no longer covered as such by the Order.

Should it be concluded that extending the duration of concessions is no longer framed by the law? Certainly not, but the legal framework must now be interpreted from the standpoint of another set of rules on changes to concessions - with all the resultant uncertainties.

The express framework for extending the duration of concessions

Law No. 93-122 of 29 January 1993 on the prevention of corruption and the transparency of economic life and public procedures, the so-called Sapin law, provided in article 40 that delegation of a service may be extended exclusively in two cases: (i) for reasons of public interest but without the extension exceeding one year or (ii) when the delegatee is obliged to make material investments not provided in the initial agreement that modify the overall economic fairness of the delegated service and which cannot be amortised in the remaining duration of the agreement - other than by imposing a manifestly excessive price increase.

In the first case, an exceptional extension limited to one year of the duration of the delegated service is granted if immediate expiry of the concession would prejudice the public interest. This faculty has mainly been used to limit any interruption of the delegated service when no successor for the delegatee has been appointed.

In the second case, an extension is granted to allow a delegatee obliged to make unforeseen investments to amortise its outlay rather than recouping the investment by increasing the cost of the delegated service. The Council of State has held that the new investments must be essential for satisfactory conduct of the service or the extension of its geographical scope and must significantly compromise the delegatee’s overall return from provision of the delegation service (Council of State, 29 December 2004, Société SOCCRAM, No. 239681).

The law was, therefore, clear and no extensions of the duration of concessions were permitted except in the above two well-defined hypotheses. Apart from in these two situations, no extensions were possible.

Abrogation of the express framework legislation

The Order has radically changed the terms of the debate.

In fact, after reading and re-reading it, neither the Order nor its enacting decree include any provision concerning extensions of the duration of concessions. And for good reason, since their purpose is to transpose a Community Directive (Directive 2014/23/EU of the Parliament and Council of 26 February 2014 on award of concession contracts) which is itself silent on this question.

Both the Directive and the Order and its enacting decree incorporate extensive statements on the durations of concessions, but nothing on the faculty of extension.

It should be emphasised that the Sapin law, and in particular its article 40, is essentially abrogated by article 77 of the Order so that the French legislative provisions no longer set out a specific framework for extending the duration of concessions.

It appears a further conclusion must be reached: the associated administrative case law detailing the circumstances in which article 40 of the Sapin law could be applied can no longer be invoked to justify an extension following the entry into effect of the Order.

Given the silence of the Order and its enacting decree, must it be concluded that the duration of concessions can no longer ever be extended, or conversely, that they can be freely extended, including in situations other than the Sapin law?

Not at all. Now, the conditions for extending the duration of a concession must be sought in the new rules on amending concession contracts.

The framework for extending the duration of concessions applying the new rules governing amendments.

The Order and its enacting decree radically modify the French law on concessions by importing a set of significant provisions on the amendment of concession contracts, a matter which previously was primarily based on case law.

Decree No. 2016-86 of 1 February 2016 on concession contracts sets out six situations in which the concession may be amended without a new competitive tendering procedure (articles 36 and 37) but without ever expressly referring to extending the duration of the concession.

Hence it becomes difficult to identify from among the situations justifying amendments, those which can be relied on to justify extending the duration of a concession contract: an amendment imposed by additional works which are not included in the initial agreement (article 36 (2)), an amendment made necessary by circumstances which a diligent client authority could not foresee (article 36 (3)), a minor amendment (article 36 (5)), or again an amendment even if significant but less than 10% of the amount of the initial agreement (article 36 (6))?

What is more the decree provides that the concession contract may be amended when the changes, irrespective of their amount, were provided for in the initial contractual documents in the form of clear, precise and unambiguous review or option clauses; however, these clauses cannot be invoked to modify the overall nature of the contract (article 36 (1)).

So, is it now possible by means of review or option clauses, to provide grounds for extending a concession contract pursuant to the Order simply provided the situations concerned are stipulated as clear, precise and unambiguous clauses in the initial agreement (and of course do not modify the overall nature of the concession contract)?

Moreover, what is the situation regarding extensions of one year maximum on the grounds of public interest provided by article 40 of the Sapin law? None of the grounds for amendments provided by articles 36 and 37 of the decree of 1 February 2016 concern extending the duration on grounds of public interest. However, nothing seems to prohibit extending the duration of a concession contract in the public interest, if the amendment - irrespective of its amount - is not significant (article 36 (5)) or even if it is significant if it accounts for less than 10% of the amount of the original contract (article 36 (6)).

This being the case uncertainty persists - and only the forthcoming case law can shed light on this issue.

In the meantime, both those wishing to be cautious and prudent, or on the contrary, the more audacious can take advantage of this time of uncertainty to establish new grounds justifying extending the duration of concession contracts that were not provided in the provisions of article 40 of the now abrogated Sapin law.

This article first appeared in the Magazine des Affaires.

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