Public Works Concession

A public works concession occupies a distinct legal category in European procurement law. Unlike a standard works contract, where a contracting authority pays a contractor to build an asset, a concession transfers the right to exploit the completed work, along with a substantial portion of the commercial and operational risk, to the concessionaire. This structural difference has significant implications for how the contract is procured, financed, and managed over its term.

What is a Public Works Concession?

Directive 2014/23/EU on the award of concession contracts governs public works concessions across the European Union. Article 5(1) defines a works concession as a contract by which one or more contracting authorities entrust the execution of works to one or more economic operators, with the remuneration consisting either solely in the right to exploit the works or in that right together with payment.

The critical distinguishing feature is the transfer of operating risk. Under Article 2(1)(a) of Directive 2014/23/EU, operating risk means exposure to the unpredictability of the market, including demand risk (variations in actual user demand) and availability risk (the concessionaire's inability to deliver the contracted volume or quality of service). If the contracting authority guarantees revenue or shields the operator from commercial variability, the arrangement may be recharacterised as a works contract rather than a concession.

The EU threshold for concession contracts subject to Directive 2014/23/EU is EUR 5,382,000. In the UK, the Procurement Act 2023 introduced specific concession rules aligned broadly with the former EU framework.

Common examples include toll motorways, bridges, car parks, and sports facilities where the operator recoups its investment through user charges over a concession period of 20 to 30 years. The FIDIC contract family includes forms designed for concession-style arrangements, particularly for transport infrastructure.

Why it matters for bidders

Bidders pursuing concession contracts must understand that they are not simply delivering a construction project: they are taking on a long-term business with revenue uncertainty. Financial modelling, demand forecasting, and refinancing risk become as important as construction capability. Selection criteria will typically assess financial capacity and the robustness of the business plan alongside technical and construction competence.

Procurement timelines for concessions are also typically longer than for standard works contracts, and competitive dialogue is the most commonly used procedure, given the complexity of the arrangements being negotiated.

Example

A Portuguese regional authority awards a 25-year concession to design, build, finance, and operate a new regional hospital. The concessionaire constructs the facility and then receives an availability payment from the authority, subject to performance deductions, rather than user charges. Because the availability payment is conditional on performance and the operator bears the risk of cost overruns and availability failures, the arrangement constitutes a concession under EU law.

Frequently Asked Questions

Is a PPP (Public-Private Partnership) the same as a public works concession?

Not necessarily. PPP is a broad commercial term that covers many forms of public-private collaboration, including concessions, but also service contracts with private financing. A public works concession is a specific legal category under EU law defined by the presence of operating risk transfer. Many PPPs do meet the definition of a concession; others do not.

How is a concession advertised?

Concessions subject to Directive 2014/23/EU must be advertised in the Official Journal of the EU (TED) using a concession notice. The authority has more flexibility in designing the award procedure than under Directive 2014/24/EU, but must still respect the principles of transparency, equal treatment, and non-discrimination.

Can a concession be extended?

Extensions are permitted only if they were provided for in the original contract and comply with the terms of Directive 2014/23/EU. Unplanned extensions that materially alter the contract risk being treated as a new award requiring a fresh procurement.