What is a Concession Agreement?
A concession agreement typically refers to a contract between a company and a government that gives the company the right to operate a specific business within the government's jurisdiction, subject to certain terms. Concession agreements may also involve contracts between the non-governmental owner of a facility and a concession owner, or concessionaire, that grant the latter exclusive rights to operate their business in the facility for a stated period of time and under specified conditions.
How a Concession Agreement Works
Also referred to as concession arrangements, concession agreements span a variety of industries and come in many sizes, from mining concessions valued in the hundreds of millions of dollars to a small food and beverage concession in a local movie theater. The terms of a concession agreement depend in large part on its desirability. For example, a contract to operate a food concession in a popular professional sports stadium may not offer much to the concessionaire in the way of incentives. On the other hand, a government that is looking to attract mining companies to an impoverished area may offer significant inducements, such as tax breaks and a lower royalty rate. Regardless of the type of concession, the concessionaire usually has to pay the party that grants it the concession regular fees as spelled out in the contract.
The more attractive and profitable a concession is, the less likely a government will be to offer incentives such as tax breaks.
A common area for concession agreements between governments and private businesses involves the right to use certain pieces of public infrastructure, such as railways. Rights may be granted to individual businesses—resulting in exclusive rights—or to multiple organizations. As part of the agreement, the government may have stipulations regarding the construction and maintenance of the railway or other infrastructure, as well as ongoing operational standards.
Examples of Concession Agreements
For example, a concession agreement exists between the governments of France and the United Kingdom and two private companies, the British Channel Tunnel Group Limited and the French France-Manche S.A., regarding the operations of the Channel Tunnel, often referred to as the "Chunnel." The tunnel, which connects the two countries and allows for passenger and freight rail traffic between them, is 31.5 miles long, with 23.5 miles running beneath the English Channel, making it the world's longest underwater tunnel and a major piece of public infrastructure.
On a smaller scale, vendors in many kinds of locations operate under concession agreements that have been granted by local governments, corporations, or other property owners. This can include restaurants and retail stores located in large airports, vendors at state fairs, or the selling of food and beverages from stands within state parks.
Among other terms, concession agreements for these kinds of activities will define the period during which the concessionaire may operate, what insurance may be required, and any fees that are due to the property owner. Payments to a property owner may include rent for the location, a percentage of sales revenue, or a combination of the two. Any additional expectations can also be spelled out in the agreement, such as identifying which of the parties is responsible for utilities, maintenance, and repairs.