Quick answer
A concession contract is a public procurement arrangement in which a contracting authority grants an operator the right to exploit works or services, transferring the substantial operating risk to the concessionaire, who recovers costs primarily through revenues from users or performance-based payments.
A concession contract sits at the intersection of public procurement and infrastructure finance. Unlike a standard public contract where a buyer pays a supplier for defined deliverables, a concession shifts the economic logic: the concessionaire builds or operates something and then earns a return from users of that asset or service, not primarily from the contracting authority. This transfer of commercial uncertainty is what legally defines the arrangement.
What is a Concession Contract?
Under the Concessions Directive 2014/23/EU, a concession contract is defined by two cumulative features. First, the contracting authority grants the right to exploit works or services. Second, that exploitation involves the transfer of operating risk to the concessionaire. The directive covers both works concessions and services concessions.
The operating risk requirement is what separates a concession from an ordinary public contract. If the concessionaire is guaranteed full cost recovery regardless of how many people use the facility or service, the arrangement is a standard contract subject to Directive 2014/24/EU or 2014/25/EU, not the Concessions Directive. The demand risk and availability risk must be genuinely borne by the private party.
In the UK, the Procurement Act 2023 and its accompanying regulations preserve the substance of this distinction. Concessions are treated as a separate contract type, with tailored award procedures and lighter touch compliance requirements compared to standard public contracts.
The financial structure of a concession typically involves the concessionaire investing in upfront capital (construction, equipment, fit-out) and then recouping that investment over the concession duration through revenue from users, usage fees, availability payments, or a blended model. The longer duration and revenue uncertainty are the price paid for the reduced public expenditure at award.
Why concession contracts matter for bidders
Concession contracts represent some of the largest opportunities in European public markets: motorways, airports, ports, waste treatment plants, social housing, car parks, hospitals under PPP frameworks, and utilities. Because the concessionaire assumes commercial risk, these contracts tend to command higher margins than standard public contracts but also require significantly greater financial modelling, risk quantification, and consortium structuring.
Bidders must demonstrate not only technical capability but also financial capacity to absorb demand shortfalls and operational volatility. Lenders, equity partners, and insurers are typically involved from an early stage. Understanding where the demand risk and availability risk sit in the contract structure is essential to pricing and to satisfying due diligence requirements.
Example
A Spanish regional government awards a 30-year motorway concession. The concessionaire finances, builds, and operates the road, collecting tolls directly from drivers. If traffic volumes fall below projections, the concessionaire absorbs the revenue shortfall. The authority pays nothing beyond granting the right to operate. This is a classic works concession with full demand risk transfer.
Frequently Asked Questions
How does a concession differ from a Public-Private Partnership?
The terms overlap significantly. A Public-Private Partnership (PPP) is a broad policy label for long-term public-private collaboration, while "concession contract" is the specific legal category defined in Directive 2014/23/EU. Many PPPs are structured as concessions, but some PPP models, particularly availability-based ones where the authority makes fixed payments regardless of usage, may not qualify as concessions if operating risk is not genuinely transferred.
Does the Concessions Directive apply to all concessions?
No. Directive 2014/23/EU sets an EU threshold (currently above EUR 5,538,000). Below that threshold, national procurement rules apply, and these vary across European countries. Some utilities, defence, and security concessions fall under different regimes. In the UK post-Brexit, the Procurement Act 2023 and the Concession Contracts Regulations 2016 (as retained and amended law) govern the process.
Can the contracting authority make payments to the concessionaire?
Yes, provided those payments do not eliminate the operating risk. A government may top up user revenues with availability or performance payments, but if those payments are so large that the concessionaire is insulated from demand fluctuations, the contract reverts to a standard public contract classification with different procedural rules.
How Bidovate helps
Bidovate puts Concession Contract to work inside your capture and proposal workflow.
Tender discoverySee Bidovate in action
Book a demo and we will show you the platform using your actual contract data.
Related terms
Works Concession
A works concession is a type of concession contract in which a contracting authority grants an operator the right to construct and subsequently exploit a works output, with the concessionaire bearing substantial operating risk and recovering costs primarily through user revenues or availability-based income over the contract term.
ViewServices Concession
A services concession is a concession contract in which a contracting authority grants an economic operator the right to provide and manage a service to the public, with substantial operating risk transferred to the concessionaire, who recovers costs primarily through charges levied on service users rather than direct payments from the authority.
ViewConcessions Directive (2014/23/EU)
Directive 2014/23/EU is the EU legal instrument that establishes for the first time a dedicated harmonised framework for the award of concession contracts across EU member states, setting transparency, equal treatment, and operating-risk-transfer requirements while granting contracting authorities wider procedural freedom than standard procurement directives.
ViewConcession Award Procedure
A concession award procedure is the process by which a contracting authority selects a concessionaire, characterised by significantly greater procedural flexibility than standard public procurement, requiring a published notice and adherence to transparency and equal treatment principles while allowing the authority to design its own selection and evaluation method.
ViewOperating Risk Transfer
Operating risk transfer is the defining legal criterion for a concession contract under EU law, requiring that the concessionaire bears genuine exposure to the uncertainties of the market, including demand-side variability or supply-side cost fluctuations, such that there is a real possibility it will not recoup its investment or operating costs.
View