EU Concessions Directive

As set out in our recent article, three new Public Procurement Directives will be transposed into national law by April 2016.

We analysed the welcome guidance for SMEs in Circular 10/2014 which is in line with the new Procurement Directives (at this link).  The purpose of this article is to focus on Directive 2014/23/EU on Concessions and the changes which will be introduced.

What are concessions?

Concessions are partnerships between the public sector and mostly private companies where the private companies exclusively operate, maintain and carry on the development of infrastructure or provide services of general economic interest. The most common form of concessions is Public Private Partnerships (PPP).  For example toll roads, parking and waste disposal are often operated as a PPP.

Previous EU directives did not afford much attention to concessions and so concessions have remained largely unregulated, guided only by the principles of transparency and equal treatment of the Treaty on the Functioning of the European Union (TFEU).  These concerns centre on contracts being awarded to contractors without due regard for achieving the best quality services at the best prices.

From April 2016, if a public authority decides to outsource the provision of a service by way of a concession, the provisions of the Concessions Directive will have to be applied.

Aim of the Concessions Directive

The Concessions Directive seeks to provide a level playing field in the EU by ensuring that any direct award to a private company of a concessions contract with a value in excess of €5,186,000 is granted on a clear and non-discriminatory basis.  The Concessions Directive seeks to open this market to SME’s by facilitating equal access and fair participation in the award of concession contracts in a transparent and fair manner.

In order to fall within the Concessions Directive, the contract must involve the transfer of an operating risk in exploiting the relevant works..  The risk transferred must “involve real exposure to the vagaries of the market, such that any potential estimated loss incurred by the concessionaire shall not be merely nominal or negligible”.  The Construction Industry Federation, in their Submission on the Transposition of the new EU Procurement Directives, point out that many arrangements will not meet this requirement and will instead fall within the scope of the new Public or Utilities Contract Directives.

The Concessions Directive does not apply to a number of sectors, for example, lotteries, the water sector and air transport concessions.  A tender which relates to those sectors may fall within the Public Sector or Utilities Directives.

The main elements of the Concessions Directive are:-

• A clearer and precise definition of concession;
• Limitation on the duration of a concession;
• Compulsory publication in the Official Journal of the EU;
• New solutions for dealing with changes to concession contracts during their term;
• Establishment of obligations with respect of selection and award criterion;
• No standard mandatory award procedures, but the establishment of general guarantees aimed at ensuring transparency and equal treatment.

Summary

While the Concessions Directive seeks to tighten the rules surrounding concessions the limitation of its scope to directives in excess of €5,186,000, together with the requirement for “real exposure” which is “not… merely nominal or negligible”, may limit its effectiveness.  Many contracts may fall outside of the Concessions Directive and will instead require compliance with the other EU Procurement Directives.

The Concessions Directive, while predominantly mandatory, does provide scope to the Government in relation to the overall strategy for implementation of specific provisions and new procedures.  The Concessions Directive provides that the design of the concession award procedure shall respect the principles of equal treatment, non-discrimination and transparency.  The Government will need to decide whether the contracting bodies should establish their own procedures in accordance with the Concessions Directive or whether they will establish a streamlined procedure across all three directives.  The latter option is favoured by the Construction Industry Federation which believes this approach “would result in greater transparency and consistency of approach which benefits contracting authorities and tenderers alike”.

While it remains to be seen what approach the Government will take in implementing the Concessions Directive, together with the Public Contracts and Utilities Directives, the message across all three is geared towards SME’s to play a greater role in tenders.  To ensure SME’s can participate in tenders, there is pressure being put on the Government to provide adequate guidance and training on elements of the new Directives.

If you have any queries on any issues raised in this article please contact Paul Keane on pkeane@reddycharlton.ie.