The concession contract
For the grantor, the fundamental clauses are those concerning the implementation of the project, the technical and financial specifications of the operation and maintenance ensuring the satisfaction of the needs of the users in terms of service quality (water quality for example, conditions of waste treatment, quality of the road network, etc.) and in price (cost of water, waste treatment, tolls, etc.). The public imperatives concern the commitments concerning the continuity of operations and the obligations of general interest adapted to the nature of the concession.
In addition, the concession contract organizes the powers of control of operation and maintenance such as physical control (for example access to the site or control of equipment, maintenance), financial control (in particular supervision of investments and audit) subcontracting approvals, approval of modifications.
The operation of the project will generally be subject to an operating license which will involve various administrative authorities. The issuance of these authorizations must be provided for under conditions which eliminate the risk of arbitrariness. In general, the commitments of the various administrative authorities will have to be the subject of precise stipulations.
From the investor’s point of view, the concession contract must also contain clear, defined and realistic provisions ensuring the flow of revenue (such as tolls for highways, the sale price of water for concession contracts. water, the price of electricity for a power station, etc.).
When the project is located in a country where there is foreign investment control, the necessary investment authorizations must be obtained, with investment guarantees. The financing conditions may also be subject to authorization. Questions of convertibility, portability, tariffs are fundamental questions for lenders and investors.
Insofar as the risks imply a potential increase in costs, and in the logic of project financing without, moreover, additional public contributions, the potential extension of the concession period to allow the recovery of investments or additional costs .
While the possibility of termination of a concession for non-performance of the grantor’s obligations is of the very nature of the concession, the balance between the implementation of the obligations weighing on the concessionaire and the protection of investors and operators requires a formal notice regime. allowing the latter to remedy the problems, proportionality between non-performance and sanctions and protection against arbitrary and unjustified termination. Sanctions must be the subject of contractual clauses and dispute settlement mechanisms which reconcile the respective requirements.
The clauses effectively allowing the resumption of the concession in the event of non-performance of commitments to bank or other creditors must ensure a balance between the interests of these and the will of the grantor to ensure that the new operator has the capacity to execute the concession contract.
Execution of the concession contract
The interpretation of the concession contract, as in general the execution of this contract, will be done using the rules of local law . These rules may be either supplementary (in particular for the rules of contract law) or mandatory, in the case of rules of public law. Contrary to popular belief, the application of the civil law rules of contracts will not pose more of a problem than those of ” common law ” because they can on the contrary be considered as easier to determine than the rules of judicial interpretation of ” common law” “.
Risks and increased costs
It should be emphasized that the concession contract is in the tradition of “civil law” a public law contract where the balance of risks is achieved by imposing the continuity of service with the corollary of unforeseen circumstances allowing the revision of financial clauses. in exceptional circumstances.
In French law, in a classic way, we distinguish the attitude of case law in private law and in public law with regard to the admission of unforeseen circumstances, private law making the contract inviolable predominate, while administrative law predominates continuity of performance of the contract.
Private law jurisprudence was first formulated in the Canal de Craponne case (Civ. March 6, 1876, D. 1876, D. 76,1,193) where the Court of Cassation made the binding force of the contract predominate. by application of article 1134 by refusing the increase of a royalty fixed by contract of the XVIth century for the maintenance of a canal, although this sum had become notoriously insufficient.
On the other hand, the Council of State, since the Gaz de Bordeaux judgment (CE, March 30, 1916, S. 16, 3, 17) decides that in administrative contracts upset by unforeseen circumstances, compensation may be granted to a contractor in order to restore the financial equilibrium of the contract and to prevent the interruption of public service. The disturbance must, in order to constitute an unforeseeable event, generate an operating deficit (CE 4 Oct. 1961, Rec. Lebon 539) and an exceeding of the limit price (CE 21 Nov. 1947, Rec. Lebon 647). It cannot be invoked by the contracting party as a fact of force majeure and he must continue the execution of the contract to benefit from the unforeseen event.
In concessions, the co-contracting party can also claim compensation if an increase in the cost of performing the contract results from the “act of the prince” (CE March 8, 1940, Rec. Lebon 99). in general, a public legal person can decide on unilateral changes in May (CE 2 Feb. 1983, Rev. fr.dr.adm. 1984.45) but the co-contracting party can obtain compensation covering the entire increase in costs which The result (EC 17 November 1967, AJDA 1968,308;. EC 27 October 1978, D. 1979,366.)
Unpredictability in private law is accepted conversely by German, Spanish, Italian and Swiss law.
The clauses say changing circumstances, wider than the force majeure clauses, which must be stipulated in private contracts, whether from civil law or in common law , while derived from the jurisprudence which they can develop the modalities .
The parties can in civil law as in common law provide that the stipulations, in particular of price, will be modified if a change of economic circumstances occurs during execution. The private law judges only refuse the modification in the event of circumstances leading to substantial and unforeseeable changes if the parties have not clearly foreseen it. The same applies to arbitrators (see for example Clunet 1974.905) unless they decide on an amicable basis (Civ. April 28, 1987, Bull 1987.I.96). In particular, it is common to provide for economic variation clauses such as review clauses. It is up to the agreement to specify the criteria which will guide the revision and the fixing mechanisms in the event of failure to agree, generally the expertise.
The fixing of the price
The problem of receipts poses both the legal and the political problem of fixing user prices and of the effective possibility of collecting this price. Insofar as these are services which were subsidized, it is necessary to determine the effective possibility of a policy which approaches the truth of prices and then makes it possible to ensure the profitability of the project. At least temporary subsidies may be essential. It is clear, as the example of electricity in California demonstrates, that imposing prices that are too low fundamentally undermines the service to the user.
In the transition from an administered economy to a market economy, pricing is done under the control of a regulatory authority. The latter must not fix the price, but ensure that this price results from market equilibrium.
The clauses allowing the project to be balanced are also the conditions of competition, in particular as regards the number of operators and the obligations of public services (coverage for example for telecommunications). The prerogatives thus granted are to be examined in the light of competition law, including those coming under foreign competition authorities which may be required to observe the effect of these commitments on the market which falls under their jurisdiction.
Ancillary public commitments
The contract may provide for the state’s commitments in terms of the police to ensure the proper management of the public service, guarantees in the event of risks incurred in the execution of the contract (disturbances or riots).
By nature, concession litigation is submitted to administrative courts which have developed specific case law on concession contracts in relation to private law.
Various concession laws provide for arbitration possibilities, which strengthen the rapprochement between the concession and the BOT. While the validity of these clauses is generally ensured by a specific law, their effectiveness is limited. Many disputes, concerning for example the application of social laws, will in any case be decided by the local courts. Furthermore, in the event of a major difficulty for the concessionaire company, the bankruptcy court will impose its jurisdiction and the application of its rules.