Public Law

An appeal court judgement published this week provides helpful clarity on what kinds of arrangements need to be treated by authorities as “service concession contracts”.

These are contracts where some or all of the money comes not from payments by authority to contractor, but from payments to the contractor from service users or other third parties. A classic example is a concession to run a Council-owned car park. The money for the contractor comes from those parking, not from the Council.

This case concerned outdoor electronic advertising hoardings owned by a London Borough which wished to lease them to a contractor who could sell the advertising space. So far so like a car park?
There was a competitive process, but it was not a procurement regulated process. An unsuccessful bidder sued on the basis that the provisions of the procurement regulations should have been applied.

Three key points can be drawn.

  1. If a contract is a genuine lease then the real estate exemption in the regulations applies. That is a helpful confirmation. The exemption begins by saying that it applies to the “acquisition or rental” of land or buildings. This has an emphasis on the buying (i.e. procurement) of real estate but the court here had no difficulty in reading the whole exemption as also applying to the Council as seller or landlord.
  2. If the contract does not oblige the contractor to do anything, it is not a contract for procurement law purposes. Here the contractor could have left the hoardings blank and paid the rent. There was no obligation actually to use them. In the context of development agreements, conditional obligations to do things (for example on the receipt of planning) remain a vexed issue, but if it is black and white then no obligation “to do” equals “no procurement”. To draw a distinction with the car park analogy, if a Council wanted to continue to have parking provision for the community, but wanted to outsource the operations, it would not lease the land to a contractor without imposing an obligation for it to be made available for its intended use.
  3. A service concession requires a link between the service and the authority or the residents in its area. The availability of a car park benefits motorists in the area.
  • The court here found that the availability of advertising space did not benefit the Borough or its residents.
  • The test is whether the services are services to or for the public, which the contracting authority would otherwise have to provide itself.
  • The court found that advertising services did not fulfil this test.

A non statistical sample of concession contracts showing live on OJEU reveals:

  • A university awarding a concession for the provision of education services
  • A number of local authorities awarding concessions for waste treatment services
  • An authority awarding a concession for the running of some cafes
  • A number of local authorities awarding concessions for energy and district heating services
  • A local authority awarding a concession for shared cycles.

All of these seem to us to meet the test identified in point 3. There is only one OJEU notice for pure advertising space, but that authority cannot be criticised for following the safe not sorry route.

Roger Cotton

Partner at Brodies LLP
Roger is a straightforward and decisive commercial contracts lawyer. He has delivered on a wide variety of projects in the transport sector, for regulated industries, and for the public sector, including social and economic infrastructure projects and complex high value projects.
Roger Cotton

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