Concessionary Agreement

Home » Agreement Articles » Concessionary Agreement

Concessionary Agreement

A Brief Introduction About the Concessionary Agreement

A concessionary agreement is a type of contract that is typically signed between a high-end government authority and some private entity or company. The agreement is used by the government authority to grant specific rights to the given company or entity for a fixed period.

The concession agreement lease is quite common in the projects associated with the development of complex infrastructural projects under the PPP (Public-Private Partnerships) model. In the context of PPP models, the concession agreement pdf is regarded as an official document using which the government authority can grant as well as exercise specific concession rights to some private-sector company for the implementation of the given infrastructure project.

Who Takes the Concessionary Agreement?

In its essence, the concession can be regarded as a specific license that is awarded by the respective government authorities to some private company or entity for the execution as well as the implementation of public-level services. This is the reason why the concession rights are granted by the government bodies to private companies only for a specific period.

These rights are exclusively held by the control of the government under law. As the government body is granting these rights, the government body is known to transfer particular operating risks to the privately-owned entity.

Purpose of the Concessionary Agreement

The concessionary agreement is known to include contracts existing between the non-government owner of some facility and the owner of the concession –referred to as the “concessionaire.” The concessionaire is responsible for granting exclusive rights to the other party for operating the business in the facility for a given period and under specific conditions.

The specialized PPP concessionary contracts can be made either to implement some infrastructure projects or for offering specific services that are related to the given infrastructure project. Also going by the name as “concession arrangements,” concessionary contracts are known to span a wide range of industry verticals while they are also available in a myriad of size options.

Contents of the Concessionary Agreement – Inclusions

In a typical concession agreement sample, the PPP model is the most popular one. In the given contract setup, the government body is known to share the overall operating risks with the private company or entity in the contract. On the other hand, the private entity is known to receive payments from the government body based on predetermined, specified, and measurable performance standards. Some of the important clauses of the concession agreement sample are:

  • Detailed information about the government body granting the concession license to the private entity
  • Detailed information about the private entity
  • Information about the location and date of the contract
  • Specific term or tenure of the contract
  • Terms & conditions for each party in the contract
  • Concession fee recovery (if any)
  • Terms of payment
  • Risks as well as the obligations of each party

How to Draft the Concessionary Agreement?

Before drafting the concessionary agreement, it is important to specify the given terms & conditions that both parties need to agree upon. The terms of the given agreement usually depend on the overall desirability of the contract in general. For instance, a contract that has been laid out for operating a good concession at some famous sports stadium might not have much to offer to the concessionaire like in the way of incentives. Irrespective of the type of concession, the concessionaire is usually expected to pay that given party granting regular concession fees, as mentioned in the contract. Some of the general guidelines to be kept in mind while drafting the concessionary contract are:

  • Be specific about mentioning in-depth details about each party in the contract
  • Specify the given terms & conditions for each party in full detail
  • The parties must be aware of the respective right as well as obligations
  • The contract should specify terms for payments and return of services as expected
  • The contract should also mention the grounds of violation and the course of actions to be taken after that

Negotiation Strategy

When you are up to signing an agreement with some party, it is important to be aware of some vital negotiation strategies as well.

  • Label the concessions properly. If you wish to achieve the best outcomes, you must label the concessions while making them salient to the other party. You should aim at emphasizing the benefits offered by your proposal to the other party.
  • Demand as well as define reciprocity. When you wish to increase the overall likelihood of getting something valuable in return for the concession, it is important to demand reciprocity at the same time.

Benefits & Drawbacks of the Concessionary Agreement

The option of granting some concession to another party comes with its own sets of benefits:

  • The contract allows the operator to practice better freedom as well as flexibility for obtaining maximum operating effectiveness.
  • The contract also allows the government authority to guarantee the construction of the necessary facilities for improved public access.
  • The clear distinction of the rights & obligations between the involved parties decreases the overall likelihood of conflicts.

Some of the potential drawbacks of the same could be:

  • The contract serves to be a binding agreement that comes with a long-term contract –delivering a more extended period of research & execution.
  • Expenses for the preparation of such a contract could be significant.

What Happens in Case of a Violation?

Upon violation of the terms & conditions of the concession contract by any party, the other party remains at a free will to either terminate the contract or file a legal suit against the other party upon breach(1).

As this contract is legally binding, it is recommended for both parties to go through the terms & conditions explicitly.