What is a concession?
It’s the action by which an Administration grants individuals or companies the right to use any of their goods or services for a specified period of time.
The process of publishing and determining the awarding of concessions must follow the fundamental principles of equal treatment, transparency, and mutual recognition. They also must ensure that public authorities obtain the best quality-price ratio when purchasing products or delegating the execution of works or provision of services to third parties. In short, the entire process must reflect the utmost transparency.
What’s the difference between a concession and a public contract?
In a public contract, companies receive a fixed amount for carrying out a project or providing a service. With a concession, companies’ remuneration mainly consists of the authorization to manage and use a work or service, which entails the risk of possible losses in the investments made.
The main difference between a concession and public procurement consists of the inherent risk that the concessionaire must take, and the latter usually finances at least part of the projects. This investment of private capital is considered one of the main incentives for public authorities to participate in this type of public-private partnership.
What is an administrative concession?
An administrative concession is the authorization granted by a public sector entity to a private initiative with the aim of using a good or service that belongs to the public domain or is publicly owned for a specified time in exchange for the payment of a fee. Through this type of contract, public administrations earn income while maintaining the right to the good or service since, in the event that the concessionary entity does not comply with the provisions of the contract, they could withdraw the concession.
Examples of administrative concession include the cession of part of the public roadway for setting up restaurant terraces, as well as the concession of use of an area sports center or that of oil extraction.
What is a highway concession?
This type of concession is where a private company builds and manages a highway for a price agreed on beforehand. That means that public land is granted for the construction of that highway, and once the works are completed, the company manages the highway; its remuneration consists of collecting tolls. The risk taken on by the concessionaire is that the income generated will not cover the investments made.
What are mining concessions?
With this type of concession, the holder is granted the right to explore, research, or use a deposit or mineral resources in the subsoil of a given area for a set period.
How do concessions work?
Concessions are administrative contracts, and though the award may be direct for minor contracts (low amounts), a public bidding procedure generally must be followed, attended by different companies under a framework of equality and free competition.
To complete the process of applying for and awarding a concession successfully, knowing the terminology of these procedures is essential.
Spanish company Ferrovial is a national and international leader in concessions for major infrastructure and service projects, such as those for the construction and operation of highways and the maintenance and management of other types of public goods like airports, to offer a few examples.
Fun facts about concessions
- Compared to other European countries, in 2021 Spain has 73.5% of the European freeway network, with the lowest toll road rates at 12.8%.
- The arrival of the ultimate deadline stipulated for many motorway concessions in Spain since 2018 has meant the abolition of tolls on many of those roads. However, it has also meant an increase in public spending due to the lack of tax collection and to conservation costs, which are now the State’s responsibility.