Concession Contracts Regulations 2016 in force from 18 April 2016

The Concession Contracts Regulations 2016 (CCR 2016) came into force on 18 April 2016 in relation to all in-scope concessions advertised by contracting authorities or utilities in the OJEU on or after that date. The CCR 2016 apply to over threshold public works concessions and public services concessions.

What is a works concession or services concession contract?

These concession contracts are:

• Contracts for pecuniary interest concluded in writing between a contracting authority/utility) and an economic operator/(s)
• Where the consideration (or “payment”) is either:
  • Simply that the contractor has the right to exploit (that is, to profit from) the works/services that are the subject of the contract.
  • Where the contractor has that right together with some payment from the contracting authority/utility.

Regulation 3(4) of the CCR 2016 further defines the necessary characteristics of the arrangement for the purposes of the regime, which:

• Must transfer to the contractor the operating risk in exploiting the works or services encompassing demand or supply risk or both; and
• The part of the risk transferred to the concessionaire involves real exposure to the vagaries of the market, such that any potential estimated loss incurred by the concessionaire is not merely nominal or negligible.

Note there is an assumption that the contractor assumes operating risk where, under normal operating conditions, it is not guaranteed to recoup the investments made or the costs incurred in operating the works or the services.
 

Thresholds for application of the CCR 2016

The threshold for the purposes of the CCR 2016 (for both works and services concessions) is £4,104,394 (EUR 5,225,000). Regulation 9 sets out detailed rules about how to calculate the potential value of the concession for the purposes of establishing whether the threshold is exceeded. Broadly speaking, the value of the concession is the estimation by the contracting authority/utility of the total turnover of the concessionaire generated over the duration of the contract, net of VAT, in consideration for the works and services which are the object of the concession contract and for the supplies incidental to such works and services.
 

If a concession contract is in scope, what process needs to be followed?

The general EC Treaty principles (equality of treatment, non-discrimination and transparency) are expressly incorporated into Regulation 25. There are obligations to:

• Send a concession notice to the OJEU to publicise the opportunity ( if the concession is for so-called Light Touch Regime services listed at Schedule 3 of the CCR 2016, you need only publish a PIN) and also to publish a concession award notice post-award.
• Publish the concession documents electronically from the date of the concession notice (or, if this does not invite tenders, from the date of the ITT). This provision mirrors that in the Public Contracts Regulations 2015 (PCR 2015) with a similarly wide definition of “concession documents”, which encompasses the PQQ, ITT, terms and conditions, evaluation method and specification. On a strict reading of the regulation all these documents must be published on day one, but guidance from the Crown Commercial Service suggests there may be some latitude to interpret the regulation flexibly. Read more about this at our blog post on the topic (we assume the CCS will recommend the same approach under the CCR 2016 as under the PCR 2015).
• Limit the duration to a maximum of five years (unless the contractor can show that longer is reasonably required to allow a return on its investment).
• Observe the procedural guarantees set out at Regulation 35 onwards, for example:
  • Set out technical specifications (usual rules on equivalents, etc).
  • Publish objective award criteria that are linked to the subject-matter of the contract in order of importance (note that there is an option to change the ranking of the criteria where an innovative bid (as defined) is submitted which a diligent concession granter could not have foreseen).
  • There is a possibility of negotiation but this may not alter the subject matter of the concession contract, or the award criteria or minimum requirements.
  • Observe minimum time limits.
  • Apply mandatory and discretionary exclusion criteria.

What is the award, standstill and remedies regime?

The regime around the sending of Award Decision Notices and the holding of a standstill period mirrors that in the PCR 2015 and so hopefully will be familiar to contracting authorities and utilities. The routes to challenge also mirror those in the PCR 2015 (including the possibility for a supplier to make a claim for a declaration of ineffectiveness if it believes one of the three grounds for such a declaration is met).
 

Variation of concession contracts under the CCR 2016?

The provisions on modifications mirror those in the PCR 2015, meaning that variations can be made where these were clearly precisely and unequivocally set out in the original contract. Of course it is often difficult to foresee variations that may be needed further down the line; if the variation is not clearly set out in the original contract then the parties will need to test whether it falls within one of the “safe harbours” set out at Regulation 43(1).
 

What are the reporting obligations?

The CCR 2016 contain no direct equivalent of the PCR 2015’s “Regulation 84 Report” – however concession granters do need to be ready to send such reports about the award process or the contract to the Cabinet Office as it might request.

Comment

This is a new regime and the jury is out on the impact it is likely to have on the market. The threshold for both works and services concessions of around £4 million is relatively high (particularly when compared to thresholds for standard public services contracts), meaning that many smaller concessions will continue not to be caught. In contrast, the maximum duration of a concession of 5 years (unless a longer period can be justified to achieve the necessary return on investment) is a relatively short period and, based on our experience, we anticipate that justifying a period longer than 5 years will become the rule rather than the exception here. Historically, concessions have, to a large extent, sat outside the public procurement regime (previously the regime regulated works concessions very lightly and did not regulate services concessions at all, although both were still subject to EU Treaty principles if there was a likely cross border interest in the concession.). This may have led contracting authorities and utilities to design their contracting approach as a concession and thereby avoid the procurement falling under the procurement regime. However, now that over-threshold concessions must be advertised and a procurement process followed, it raises the question of whether this route will remain such an attractive option after all.