Learn what a model concession agreement is, its key clauses, how it works, U.S. use and how it differs from a final contract.
The first time I saw the word model concession agreement I just knew it was some sort of legal term that I, as someone working in government contracting, infrastructure or project finance, should be able to intuitively understand. No, I didn’t. Initially I thought it was just an ordinary contract allowing a private firm to occupy government land. Yet, I became increasingly aware during my research that a concession agreement can be used to specify not only, which party should design the project and who should finance it, but also who should run the project, exactly, which risks should be borne by whichever party, how to gather the revenue and what the effect should be when the agreement terminates.
That is quite a list of things to be responsible for under one contract and this is why having it is so helpful. The model offers a starting point for a concession or public-private partnership (PPP) contract. Legal Updates can also be useful when reviewing these agreements because changes in applicable laws, regulations, procurement requirements, or contractual guidance may affect how a concession is structured.
For the American reader one note: there is really no such thing as one it for all projects in the United States. Different states, project types, industries authorities, rules of procurement and law would have different requirements. What actually comprises it, and what does it do? Let’s take a look at some of the elements.
What Is a Model Concession Agreement?
A it is a structure contract or model contract, which is normally used as a template or as a hypothetical concession agreement In the one usually type of concession, a government agency, public body or other owner of an asset grants to a private company, generally called concessionaire, the right to develop, operate, maintain, or commercially exploit an asset or service for a set period of time under agreed conditions. Design is like a plan. It gives it some form, but the building must still be tailored to fit its environment and function.
It may also be used to deal with many of these issues, including the scope of services, the build, operate and maintain provisions financing, tolls, and user fees, risk allocation insurance performance targets and defaults or terminations, dispute resolution and the handback of the assets.The World Bank contends that a PPP contract defines the roles and responsibilities, assigns the risks, and brings for change management during the life of a project. Yet, a model contract is only a template; it is not a standard contract ready to sign.
2) What Is a Concession Agreement?
A concession agreement grants the private party a limited right to develop , operate and/or manage an asset or service per explicit rules. Suppose a state is looking to bring about a major project related to transportation, but does not want to undertake the task of designing, constructing, and operating this project in the future. In this case, the state might enter into a contract with a private business, which would be responsible for designing, financing , constructing, and maintaining the project, most likely for a predetermined number of years. So we are really talking about it’s more than permission to use public property. It establishes a lengthy legal and fiscal partnership.
How Does a Model Concession Agreement Work?
A it is one of a wider project-development and procurement process.
- The authority identifies the project. The public agency identifies a transportation, utility, or public facility project that could use private participation.
- The structure is created. The parties choose who will fund, construct and run the scheme, will the users or the government pay for it and who will have the demand and construction risk.
- Themodelis a starting point. The Federal Highway Administration (FHWA), for instance, offers model contract guidance for U.S. highway[P3]s, including toll concessions and availability-payment arrangements.
- It is tailor made to the document. The final SLA is influenced by state law, federal obligations, procurement capitalization, technical standards and the particular risks of the project.
- The negotiated contract governs. Where the contract is signed, negotiated and signed-agreed, the signed agreement is governed.
What Are the Model Concession Agreement Contents?
A it is often long though it is fairly straightforward to follow the key sections:
Definitions and Interpretation
There are also certain defined terms, for example concessionaire authority, financial close completion force majeure, default. One definition may impact many other provisions.
Scope and Concession Period
The scope of activity to be performed by the concessionaire (design construction financing operation maintenance, revenue collection, or commercial development) and concession duration (concession period and construction period, extensions, and early termination) are clarified in the agreement. The period length may influence financing and revenue streams.
Construction Obligations
Items can include design standards, schedules specifications, milestones testing inspection, quality control faults, delays, etc. For example, on a large highway project or bridge, they may be very detailed.
Operations and Maintenance
Someone has to operate and service the asset. The contract may prescribe standards of service and maintenance, safety and inspection rights and reporting obligations. A road concession, for instance, could oblige the operator to service the road surface signage lighting and drainage to certain standards.
Payment and Revenue
Based on the project the concessionaire may generate revenue from tolls, user charge, government payments, availability payments, other commercial activity or revenue sharing. FHWA states that revenues from highway P3’s can be used for operating costs, debt payments, reserve funds and return on the investors.
Risk Allocation
This is one of the most delicate parts. Imagine two people moving a big box: if both are unaware of which side is theirs, it will probably fall down. The allocation of contract risk must state who is liable for construction financing operating, demand traffic regulatory environmental maintenance and force majeure risk. Distributing all risk to a single party is not the goal, the allocation should mirror the tasks to be used and the skills of each being responsible.
Insurance and Force Majeure
The concessionaire could be required to hold certain insurance, but there would be restrictions on requirements of the permit, conditions and safety. When a force majeure, the provisions cover the notice to the other party, suspended obligations, financial consequences and termination following an extended period of cessation.
Default and Termination
The contingencies detailed in the agreement determine the procedure in case the other party is not able to fulfill his commitment due to private-party default, government default, insolvency and longduration force majeure, as well as the disposition of assets and remaining receivable.
Dispute Resolution
For each project and law, the contract could be negotiated, submitted for expert determination, involved in mediation, arbitration or goes to the court. By determining the process in advance could help the parties to handle the dispute naturally.
Model Concession Agreement in the United States
There is not one single United States concession agreement. The structure differs per state law, federal requirements, public authority industry project structure, procurement rules and financing model.
The FHWA offers Model Public-Private Partnership Core Toll Concessions Contract Guide for toll projects, as well as model availability-payment highway P3 guidance.
If you are looking for the U.S. mode concession agreement, first I think you should determine the kind of project and jurisdiction. In several kinds of projects the highway concession may differ from the public facility, utility or airport service.
What Is the HAM?
You may also come across the term HAM during your study of infrastructure PPPs. HAM refers to Hybrid Annuity Model, a particular delivery and financing method used with the highway sector in India. Do not confuse it with a general U.S. concession agreement.
Per the India National Highways Authority of India’s (NHAI) description for the structure NHAI shares part of the project cost during construction with the remaining 60 % funded through the annuity payment during the concession period, NHAI also states that 40% of the Bid Project Cost will be funded by NHAI during construction and the remaining 60% will be arranged by the concessionaire through financing and equity.
The bottom line: the HAM it applies only within one particular Indian highway PPP model structure, not under a generic U.S. way of thinking.
Model Concession Agreement vs. Final Concession Agreement
| Model Concession Agreement | Final Concession Agreement |
| Gives a basic structure and outline of the issue. Points out the main questions of concern. | Controls the collection of the actual project. |
| Is easily customizable to… | Has project-specific provisions. |
| May be published for use as guidance | Has been negotiated and agreed upon |
| It now runs as the project document for theAction. | |
| Executes | |
| This task relates to closely monitoring the project tasks. | |
| If in doubt, follow the confirmed ride and let if. | |
| Also contain provisions for separating and distributing funds if greater than some amount, and procedures for sharing income and expenses between projects and global. |
Imagine the model is a recipe. It indicates which factor is needed. The final agreement is a spent meal on a specific project.
Advantages of it
A model agreement can offer many advantages: uniformity of approach on similar projects, quicker drafting, easier review by officials, investors , lenders and lawyers, risk discussions at an earlier stage, and increased predictability. Based on the World Bank, “whereas standard provisions of the type found in model contracts and documentation may be useful in minimizing transaction costs, they will have to be adapted to the circumstances of the particular project.”
Common Mistakes to Avoid
And the most serious error of all: assuming that a model is simply an empty contract to be filled in. It may not deal with your project’s state law, procurement needs, the structure of your financing, technical requirements, the impacts of environmental law, the revenue model or termination provisions.
The last thing to check is whether you are looking at a finance-only document. Between operational maintenance performance, default and termination provisions, a whole raft of other issues are as important as the finance. The last thing to do is ensure the model you are using is up-to-date, due to agencies updating their contracts and instructions.
Can You Use a Model Concession Agreement as a Template?
Yes. As a starting point for research/drafting. Yet, don’t simply duplicate it and only fill in a few blanks without concluding that it’s ready to be executed. For a U.S. project, determine the project type, authority/owner jurisdiction law(s) which are involved, applicable sourcing/purchasing rules and requirements, review the correct authorized model or handbook and have properly qualified legal and financial professionals review the final agreement.
Frequently Asked Questions
What Does it Look Like?
A generic or sample structure applied to as a basis for a concession outlining issues such as obligations funding risk-sharing operating performance, end of agreement and conflict resolution.
Is It Identical or Not a Final Instrument
No, the model is a setup. The finalized document is treaty specific and final execution becomes the operative agreement.
Concessions in the US. Are Model Concession Agreements Used in the United States?
Yes. The FHWA offers sample guidance on highway toll concessions and availability-payment P3s.
What Is this HAM?
This is also India specific (highway PPP’s under the Indian Hybrid Annuity Model is one such Indian specific arrangement and has been dealt with distinctly with a U. S. model).
Which Are the Most Common Clauses?
Scope and duration, scope and construction & operating obligation(s), payment mechanism(s), risk apportionment, performance standard(s) insurance force majeure default termination, dispute resolution and asset hand-back.
Can It Be Employed Without Changes?
No. It should refer to the legal, financial technical, regulatory and procurement requirements of the project.
Final Thoughts
- The first time that I read the phrase, I thought that the problem was to deal with the definition.
- Actually, the question is what it means somewhere behind the document. Who creates the project? Who financed it? Who runs it? Who made the risk? How does the private agent get paid? What occurs when it fails or when the concession is finished?
- A it is essentially a choice of answers to those questions. For the reader from the United States, there is no single universally applicable model contract to be had.
- The most suitable contract will vary according to the project location law authority sector, financing structure and on the specific terms of the project.
- And if you’re finding in your research in the ham it, please do remember that it is a specific Indian road highway PPP based on Hybrid Annuity model.
- The terminology looks quite familiar. But the legal and financial arrangements can be quite diverse.
Additional Resources:
- FHWA Model Contract Guides: the official U.S. source for the toll concession and availability-payment guides the article cites.
- World Bank Guidance on PPP Contractual Provisions: covers the provisions found in nearly every PPP contract, such as force majeure, change in law, and termination payments.
- MoRTH Standard Documents: India’s official page for the HAM model concession agreement and its amendments.
