The Efficient Concessions Contract

Simon Ø. Larsen & Jacob L. S. Christensen

Student thesis: Master thesis

Abstract

The European Commission published the new public procurement directives in 2014 with an overall target of simplifying the rules and procedures for the public sector across the Member States in Europe. The concessions directive was one of the parts of this “package” of directives and has been groundbreaking in terms of the integration of works concessions and service concessions into one directive to avoid the legacy of legal fragmentation. Concession contracts are an important part of the European Commission's “Europe 2020-Strategy” which encourage the Member States to gain the benefits of the private companies’ expert knowledge and investments across borders. A concession contract should be seen as a partnership between a public entity and a private company and can last for many years. It can be seen by the public EU procurement register “Tenders Electronic Daily” that the concession contracts for work concessions in Europe has a huge fluctuation between Member States. This master’s thesis wants to investigate how a public entity can increase the value of the concession contract based on the concession directive and the economic characterization of the concession contract for works concessions. As the concession contract can provide the public entities with alot of efficiency and help to solve budgetary constraints this thesis wants to examine what a public entity should be aware of when awarding a concession contract to an economic operator. To answer the problem definition, it has been necessary to derive a legal clarification of how a contract can be awarded as a concession contract in terms of the concession’s directive. The economic part of this thesis will use Principal-Agent Theory and Transaction Cost Economics to analyze how procuring a works concessions contract impacts the incentives by the economic party compared to a public procurement contract. These theories show, that with a high information asymmetry, where hidden action occurs, and with a high asset specificity on the market, it will be advantageous to procure a works concessions contracts rather than a public contract. These advantages of the works concession contract also create some incentives problems regarding the price set by the operator and the incentive to invest in contract. Due to these incentive issues in the contract, the analysis in chapter 4 of the thesis tries to analyze how the public entity can design a contract to reduce the incentive problems in the framework of the concession directive, to hereby capitalize on the positive effects of the works concession contract. If the risk is allocated efficiently in the contract, if the length of the contract is long enough to encourage high investment incentives without pricing the monopoly price for a long period of time, and if a proper price regulation is set by the public entity in the contract, it is possible for the public entity to design a Kaldor-Hicks-efficient works concession that encourage high investments with a low price on the market in the framework of the concession directive.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages127
SupervisorsKathrine Søs Jacobsen Cesko