Alongside the demise of the Public Contracts Regulations 2015 (PCR) we see the end of the (perhaps less used but equally exciting) Concession Contracts Regulations 2016 (CCR), as the Procurement Act 2023 (PA 23) seeks to encompass all procurement law in the one place.  

What does this mean for how concession contracts are procured from 24 February?

What is the definition of a concession?

The definition of what makes a concession contract has not altered substantially – it still requires that at least part of the consideration for the works or services (it is not possible to have a supplies concession) is the right for the concessionaire to exploit those works or services, and for the concessionaire to be exposed to a “real operating risk”.  

The factors giving rise to that risk must be reasonably foreseeable at the point of award and must arise from matters outside of either party’s control (so, for example, not arising from a breach of the contract or failure to deliver). 

Are concessions covered by PA 23?

Under PA 23 a concession is a public contract once it is above the financial threshold (currently £5,336,937) and so falls within “covered procurements”. This means that when procuring a concession, it is the processes and procedures in PA 23 that must be applied. However, concessions fall within what is described as “special regime” contracts, meaning that certain of those rules are then carved out, primarily where it makes little sense to apply them in the context. In particular, there is no need to set and publish KPIs under section 52 (regardless of contract value) or comply with the various obligations relating to payment terms, or payment compliance and reporting. 

In a nod to previous freedoms from the process for lower value concessions, there is also no need to apply the below threshold contracts rules in Part 6. 

How do I calculate the value of a concession?

The value of the concession is the “maximum amount the supplier could expect to receive under or in connection with the contract including, where applicable, amounts already received”.  This is expected to include: 

• revenue (monetary or otherwise); 
• the value of goods, services or works provided by the contracting authority (unless for payment);
• any options to extend the scope or term of the concession;
• premiums, fees, commissions or interest; and
• receipts from the sale of assets by the supplier. 

Calculating the anticipated revenue from a concession may be challenging without the benefit of the supplier marketplace’s knowledge and expertise.  It may be helpful, therefore, to consider preliminary market engagement before procuring a concession to ensure that you adopt a methodology that reflects the market and will provide a credible estimate. 

What about mixed procurements?

Where a contract includes elements that could reasonably be supplied under a separate contract (that itself would not be a concession, and would be above threshold), then that contract is not to be treated as a “special regime” contract.  This is an anti-avoidance measure to ensure that the flexibilities given to concessions are not exploited when different rules should really apply. 

For example, when procuring a works concession you will need to consider whether the initial works element (if above threshold) could reasonably be procured separately, with the onward operation/exploitation of the output of the works being a services concession. 

If the two could be separated, then you can still procure a combined contract, but it will not be treated as a “special regime” contract.  This would mean ensuring that you comply with the need to set and publish KPIs, and performance against them, and adhering to the implied payment terms (or incorporating them into the resulting contract).  Careful thought would need to be given to drafting payment provisions in the contract to incorporate those implied payment terms while allowing for the use of a concession’s approach to consideration and operating risk.  The alternative is to procure the two separately, following the appropriate rules for each of the resulting contracts.

Contracting authorities will need to consider the practical (contractual and operational) and financial consequences of dividing or consolidating those elements. Using that same works concession example, it could be the case that the initial works and their onward operation are so intrinsically linked that they cannot reasonably be separated.  

To enable the works to be economically viable to the contracting authority, it needs to rely on capital investment through the works phase which the contractor seeks to recover through the operational phase.  That will be a question of fact in each case but when proceeding with a mixed contract – and seeking to benefit from the concession flexibilities – you will need to carefully set out your reasoning to the market.

What should I be thinking about? 

• Dead but not buried:  don’t forget about the CCR just yet – those rules are still relevant to existing concessions which, given the length of time some last, will remain in place for a while yet.
• Divide or explain:  before relying on the “special regime” route, investigate whether any works or services can be delivered via another contract.  Likewise, consider where there are supplies elements which would create a mixed procurement. Clearly justify and record your decisions, regardless.
• Just because you can, doesn’t mean you should: if you choose not to set and publish KPIs for a concession, give some thought to how, instead, performance will be measured and reported upon. 

For a conversation about concession contracts, how to procure them and how to draft them, get in touch with Gayle Monk or Alex Lawrence.