Direct award of concessions is a breach of transparency

Our procurement team looks at the implications of two significant cases on authorities awarding concession contracts re: equal treatment and non-discrimination on the basis of nationality.

19 November 2013

Authorities awarding concession contracts are often outside the procurement regulations but must nonetheless comply with overarching obligations of equal treatment and non-discrimination on the basis of nationality. In turn this means that they must comply with obligations of transparency when advertising and awarding the concession and cannot make a direct award without taking proportionate steps to be transparent.

Two European Court cases have reinforced this obligation: 

In both, the Court of Justice of the European Union (CJEU) reiterated the reasonably well established law that Authorities must be transparent even where the contract being procured is a concession; ie a contract which the recipient is able to exploit for its own profit and where the performance risk has substantially be transferred to the recipient.

Hence, provided the recipient of the right gains some benefit from it, simply awarding a contract (or the right to exploit without an obligation to do so) to a national company by way of direct award will be a breach if the contract potentially had cross border interest.  

The requirement for there to be potential cross-border interest may be satisfied from the financial value of the planned agreement, from the location where it is to be performed or from its technical characteristics. No actual interest needs to be demonstrated.

The basis of the cases:

Belgacom 

Four inter-municipal associations made a direct award of a long lease to Telenet to use certain cable distribution networks belonging to them. This right was a concession and was not advertised. The CJEU considered that it could attract cross-border interest and should therefore have been advertised.

Comune di Ancona

Comune di Ancona applied for and was awarded funds made available for infrastructure projects – in this case to build a slipway. After building the slipway, Ancona decided to contract out the management of the slipway and did so by making a direct award. The funding body challenged the direct award for lack of transparency and the CJEU confirmed that it should have been advertised.

These cases reinforce the established position under the current UK Regulations. UK authorities (although not necessarily utilities) are obliged to comply with overarching, and often unspecific, European law obligations even when the regulations do not apply to a particular contract (UK caselaw on this point includes, for example, Photo-Me International v Network Rail Infrastructure Limited.

Concession contracts are the most obvious example of this as they can fall outside the Public Procurement Regulations. The law on concessions is however set to change following the introduction during 2014 of new European directives with the introduction of specific new UK regulations governing concessions to follow. The impact of those regulations will come to be seen with time, however, authorities procuring concessions will still need to comply with general EU principles even after the new Regulations are implemented.  

It is not safe, and will remain unsafe, for an authority to make a simple direct award of a concession.

Patrick Parkin is part of Burges Salmon’s cross-disciplinary Public Procurement and State Aid team led by John Houlden.

Key contact

John Houlden

John Houlden Partner

  • Head of Public Sector
  • Head of Procurement and State Aid
  • Projects

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