Concessions are one of the most important mechanisms for enabling large infrastructure projects, allowing the private sector to take over the execution, operation, and maintenance of public services or projects for a specified period. 

This model, widely used in sectors such as highways, ports, airports, sanitation and energy, enables investments that would often not be possible with state resources alone.

When analyzed from the perspective of FIDIC contracts, a set of internationally recognized contractual models used for engineering works and projects, the concession takes on an even broader meaning. 

It ceases to be merely an administrative contract and becomes a complex structure involving technical responsibilities, financial obligations, risk management, and performance guarantees, all based on contractual standards consolidated in the global market.

What is concession?

In general, a concession is an agreement by which a public authority transfers to a private entity the responsibility for executing a service or project of public interest, exploiting it economically, and maintaining it in operation, according to previously established conditions. The contract establishes a defined term, at the end of which the assets and operations revert to the granting authority.

In Brazil, this model is governed primarily by Law No. 8,987/1995, which deals with concessions and permits for public services, and Law No. 11,079/2004, which regulates Public-Private Partnerships (PPPs). In other countries, specific legislation exists, but the essence of concessions remains the same: allowing the private sector to finance, build, operate, and maintain a service or infrastructure of public interest.

Concession in the context of FIDIC contracts

FIDIC (International Federation of Consulting Engineers) contracts are widely used worldwide as a reference for drafting engineering works and services contracts. Their main feature is their balanced clauses that clearly define the responsibilities, risks, and rights of each party involved.

When applying a FIDIC contract to a concession model, it is necessary to make adaptations to include elements specific to this type of relationship, such as:

• Longer terms, which can exceed 20 or 30 years;
• Detailed rules on tariffs and adjustment mechanisms;
• Maintenance and operation obligations throughout the concession period;
• Specific clauses for dispute resolution in long-term contracts.

In the international market, there are FIDIC models specially adapted for concessions and BOT (Build, Operate and Transfer) or DBO (Design, Build and Operate) contracts, which share the logic of transferring responsibility for construction and operation to a private entity before returning it to the granting authority.

Essential characteristics of the concession

Although there are variations, every concession has core elements that need to be reflected in the contract, especially when adopting a FIDIC model:

Risk transfer

The concessionaire assumes risks related to the execution of the work, operation, maintenance, and, often, the demand for the service. The correct allocation of these risks is one of the pillars of the contract's economic and financial balance.

Deadline

The contract duration is defined to allow the concessionaire to recoup the investment made and obtain an adequate return, without compromising the project's economic viability. Upon termination, the good or service is returned to the granting authority under pre-defined conditions.

Compensation model

The concessionaire's revenue may come from fees paid directly by users, government contributions, or a combination of both. The contract must clearly establish the calculation formula, the frequency of adjustments, and the performance indicators that determine payment.

Private investment

In most cases, it is up to the concessionaire to raise and apply the resources necessary to implement the infrastructure or service, assuming significant financial risks.

Stages of a concession structured with a FIDIC contract

The execution of a concession under a FIDIC contract generally follows a structured cycle that ensures organization and predictability. This cycle can be divided into five main phases:

1. Planning and bidding

The granting authority defines the project's technical, economic, and legal requirements. Feasibility studies are conducted, and the bidding document is prepared, including contractual drafts adapted to the FIDIC model. At this stage, it is crucial to establish the risk matrix and the rules for economic and financial rebalancing.

2. Signing the contract

After the winner is selected, the contract is formalized, detailing obligations, deadlines, and oversight mechanisms. It is common to include provisions that address contractual governance and the interface with regulatory agencies.

3. Construction phase

The concessionaire is responsible for executing the works according to the established quality standards and schedules. The FIDIC model emphasizes the role of the engineer as an independent figure, responsible for monitoring and mediating any technical disagreements.

4. Operation and maintenance

Once construction is complete, service operation begins, with continuous monitoring of performance indicators. The contract must include mechanisms to correct failures and ensure the availability and quality of the service over time.

5. Closure and reversal

At the end of the contract term, the concessionaire returns the assets to the granting authority, meeting the stipulated conservation and operating criteria. This stage may also include technical and financial audits.

Advantages of using FIDIC contracts in concessions

The adoption of FIDIC contracts in concession projects offers relevant benefits:

• Clarity and standardization: FIDIC models provide a logical and clear structure, with internationally recognized language, which facilitates understanding by all parties;
• Balance in risk allocation: The FIDIC philosophy seeks to distribute risks fairly, assigning them to the party best able to manage them;
• Dispute resolution mechanisms: These include bodies such as Dispute Boards and arbitration, which help avoid protracted litigation;
• Global recognition: Because they are widely used, they inspire confidence in international investors and financiers.

Challenges and necessary care

Despite the advantages, the application of FIDIC contracts in concessions requires attention to some challenges:

The first issue is adaptation to local legislation. The FIDIC standard model needs to be adjusted to incorporate the country's or region's legal requirements, including rules on public procurement, guarantees, and tariff limits.

Another critical point is defining performance indicators for long-term contracts. It's important to create metrics that are objective, measurable, and adjustable over time, avoiding distortions.

It is necessary to provide robust financial guarantees, such as performance insurance and bank guarantees, to reduce the risk of default or breach of contract.

Difference between concession and other contracting models

It is common to confuse concessions with contracts, PPPs or leases, but there are clear differences:

• In the contract, the contractor delivers the finished work, without responsibility for operation or maintenance;
• In PPPs, there is a more balanced division of responsibilities and investments between public and private sectors, with contracts often shorter than full concessions;
• Leasing involves the transfer of use of an asset, but without transferring to the lessee the obligation to invest in improvements or maintain operations in the manner required in a concession.

The role of the parties in the FIDIC concession contract

In a concession contract structured based on FIDIC, each party performs specific and critical functions for the success of the project.

The granting authority is responsible for defining the contract's terms, overseeing its execution, and ensuring that economic and financial balance is maintained. It acts as a regulator and guarantor of contractual conditions.

The concessionaire assumes operational and financial risks, executes the works, operates the service and seeks efficiency to meet performance targets and obtain a return on investment.

The engineer is the central figure in the FIDIC model, acting as an independent third party who oversees, issues payment certificates, decides on technical disputes and ensures that the parties fulfill their obligations.

Strategic importance of concession in infrastructure development

Concessions represent a strategic tool for expanding and modernizing a country's infrastructure. They allow for leveraging private investment, accelerating the delivery of essential services, and transferring operational know-how to the public sector.

By using FIDIC contracts, the management of these concessions gains transparency, predictability, and standardization, elements that are valued by both regulatory bodies and international financiers.