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New concession rules in Scotland finalised with changes across the UK also confirmed for April

Major changes to rules on the procurement of public sector or utility concession contracts across the UK are to be implemented in April after separate initiatives by the UK and Scottish governments were taken forward this week.05 Feb 2016

The Scottish Government laid the Concession Contracts (Scotland) Regulations 2016 (64-page / 343KB PDF) before the Scottish Parliament, with the new framework set to come into force in mid April. The regulations, once in force, will implement an EU directive on concessions contracts procurement.

Similarly, the UK government has confirmed its plans to implement the concessions directive (15-page / 528KB PDF) in a policy paper. Those reforms, when implemented, will apply in England, Wales and Northern Ireland. The majority of the reforms in Scotland will come into force on 18 April 2016 and a similar approach is anticipated for the rest of the UK. 

A concession contract is a form of public sector contract under which the winning bidder for that contract is granted a right by the contracting authority to exploit the work/services to be carried out under the contract in order to make a return on the investment that supplier makes to carry out the contract. One example might be where a company is contracted by a government agency to build a new toll bridge.

"Until now public works concession contracts have been regulated by the EU's procurement directives but services concessions in the public and utilities sectors, as well as works concessions in the utilities sector, have not," public procurement expert Elaine McLean of Pinsent Masons, the law firm behind Out-Law.com, said. "Procurement of these exempt concessions has been governed only by general EU Treaty principles, where relevant, such as equal treatment and transparency. That will now change."

McLean said that all concession contracts with a value of over £4,104,394 will be subject to the new rules and need to be advertised in the EU's Official Journal. The same financial threshold applies to works contracts in the public and utilities sector, she said.

Purchasers will still be able to determine how their tender procedure runs, although this will be subject to certain minimum rules on mandatory or discretionary grounds for the exclusion of bidders from the procurement process, as well as time limits for expressions of interest and tenders, and award criteria, McLean said. Concession contracts will also have to be limited in length under the new frameworks.

"Where a concession is to be longer than five years, the maximum duration should not be longer than the time in which the supplier could be reasonably expected to recoup its investment and a return on its capital investment which reflects the investment required," McLean said.

The new regulations "could affect a large number of concessionaires" despite the threshold for the regulations being £4,104,394, she said. This is because "the value of the concession contract will be based on the total turnover of the concessionaire generated over the duration of the contract, net of VAT, and not just the value of any profit element.  It is this value which will be used to determine whether or not an arrangement will meet the relevant threshold and therefore be subject to the new regulations", she said.

"Authorities also need to bear in mind that if they commence a procurement process for a concession contract which they consider to be below the relevant threshold and therefore not subject to the concession regulations, they must revisit the value of the contract prior to awarding the contract," McLean said.

"In circumstances where the value anticipated at contract award stage has increased by more than 20% and this brings the value of the contact above the £4,104,394 threshold, the contract will be deemed to be subject to the regulations," she said.

Under the new public sector concession contracts regime in Scotland, rules that will make it mandatory for all communication to do with the procurement of concession contracts to be carried out electronically will come into force in stages. Central purchasing bodies will have to communicate entirely by electronic means by 18 April 2017, and all other bodies awarding concession contracts will have to do this by 18 October 2018.  A similar approach is anticipated for the rest of the UK.

Since reforms to EU public procurement rules were finalised in 2014, EU countries have been working to implement the changes into national laws. The reforms consisted of three new EU directives, on public sector procurement, utilities sector procurement and the procurement of works and services concessions by contracting bodies in the public and utilities sectors. 

The deadline for EU countries to implement the new Public Procurement Directive as well as the rules affecting utilities and concession contracts is 18 April 2016. However, the reforms from the EU's public procurement directive have already been implemented in England, Wales and Northern Ireland. The Public Contracts (Scotland) Regulations 2015 and the Utilities Contracts (Scotland) Regulations 2016 will come into force in Scotland on 18 April.