Concession Agreement Clauses

Concession Agreement Clauses: A Comprehensive Guide

A concession agreement is a type of contract between two parties where one party, the concessionaire, is granted the right to operate, manage, or maintain a particular asset owned by the other party, the concession grantor. Concession agreements are commonly used for various purposes, including the operation of airports, toll roads, and stadiums.

However, concession agreements can be complex legal documents that require careful attention to detail. In this article, we will focus on concession agreement clauses, their meaning, and significance.

1. Term and Termination Clause

The term and termination clause is one of the most critical clauses in a concession agreement. It defines the duration of the concession, including the start and end dates, and the grounds for termination. The duration of the concession may vary depending on the nature and complexity of the project.

The termination clause outlines the circumstances under which either party can terminate the agreement. The grounds for termination may include a breach of the agreement, bankruptcy, or force majeure. It is essential to carefully review this clause to understand the conditions that may trigger termination and the consequences of termination.

2. Performance Standards Clause

The performance standards clause sets out the minimum standards that the concessionaire must meet throughout the concession period. The performance standards may include service quality, safety, environmental protection, and financial viability. The concession agreement may specify the methodology for measuring performance, such as audits or third-party assessments.

The performance standards clause is crucial to ensure that the concessionaire delivers the services and maintains the asset to the required standard. It also provides a basis for penalties or incentives based on the concessionaire`s performance.

3. Revenue Sharing Clause

The revenue sharing clause defines how the concessionaire and the concession grantor will share the revenue generated from the asset. The revenue sharing model may vary depending on the nature of the asset and the market conditions. The concession agreement may include a minimum guarantee payment, a fixed percentage of revenue, or a combination of both.

The revenue sharing clause is essential to ensure that the concessionaire and the concession grantor have a fair and equitable distribution of revenue. It also provides the concessionaire with the financial incentive to maximize the income generated from the asset.

4. Maintenance and Repair Clause

The maintenance and repair clause sets out the responsibility for maintaining and repairing the asset during the concession period. The clause may specify the frequency of inspections, the scope of maintenance and repair works, and the standards to be met. The concession agreement may also include a schedule of maintenance and repair works and the associated costs.

The maintenance and repair clause is crucial to ensure that the asset is kept at the required standard throughout the concession period. It also provides clarity on the allocation of responsibility and costs for maintenance and repair works.

5. Assignment and Change of Control Clause

The assignment and change of control clause sets out the conditions under which the concessionaire can assign the concession agreement to a third party or change its ownership structure. The clause may require the concessionaire to obtain the concession grantor`s consent and provide assurance that the assignee or the new owner meets the required standards.

The assignment and change of control clause is essential to maintain the continuity and stability of the concession agreement. It also provides the concession grantor with a degree of control and oversight over any changes in the concessionaire`s ownership.

In conclusion, concession agreement clauses are critical to the success and sustainability of the concession project. A well-drafted concession agreement should provide clarity, transparency and allocate the risks and responsibilities between the concessionaire and the concession grantor. Therefore, it is essential to seek legal advice and conduct thorough due diligence before entering into a concession agreement.