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The Art of Renegotiation of Concession Contracts

In developing nations around the globe, the major challenge faced by respective governments was the availability of funds and capital for the completion of key infrastructure projects. Even with the initiation of public-private partnerships, many private players were concerned about the returns on their investments. That is when public-private partnerships began awarding concession contracts for various infrastructure projects.

Concession contracts are made for the long term, usually for more than 20 to 30 years; in many cases, the time can extend longer. Contract terms must be factored in for an extended period, considering all possibilities. Hiring a reputed infrastructure consulting firm in Dubai for such a project becomes quite helpful.

Often during the long tenure of a concession contract, there can be eventualities that can make the performance of the contract difficult, incomplete, inadequate, or downright impossible; in addition, no clause in the existing contract can help in reversing the situation; in such instances, renegotiating the terms of the contract becomes the only viable solution.

Renegotiating terms for large PPP projects becomes a significant challenge that must be accomplished with skill by both the government and the private sector. In most cases, both parties hire their respective PPP and project finance firms in the UAE to help them get the best solution out of the situation. This article will look in depth at concession contracts and how to renegotiate them.

What Exactly Is a Concession Contract or Agreement?

A concession agreement or concession contract is a contract that grants a corporation the right to conduct a specific business under the authority of a government or on the property of another company, subject to certain set conditions. Contracts between the non-governmental owner of infrastructure and a concession owner or concessionaire are standard in concession agreements. The concessionaire is granted exclusive rights to conduct business at the facility for a set period and under specific terms. Project finance advisory firms in Dubai, such as Green Urbane, play a vital role in planning, drafting, and implementing concession contracts.

The most common examples of concession contracts are between government authorities and infrastructure development companies for expressways. The toll collection units on the respective highways are a form of concession given to the developer to help the firm recover its investments.

What are Concession Contracts?

Mining concessions worth hundreds of millions of dollars are among them, as are tiny food and beverage rights in a local movie theater. Regardless of the type of concession, the concessionaire is usually required to pay the concession fees to the party that grants the concession. These costs, as well as the laws that govern how they can vary, are typically detailed in the contract.

Concession contracts often specify the duration of operation, insurance requirements, and costs. Rent for the property, a portion of net sales, or a mix of the two may be paid to the property owner. Any further requirements can also be specified in the contract. The agreement, for example, can stipulate which party is liable for utilities, upkeep, and repairs. Hiring an infrastructure advisory consultant in Dubai is the industry standard during the concession contract process. Taking guidance from project finance and infrastructure advisory firms in the UAE is often an easy and safe way to go ahead with a concession contract.

What Are the Benefits of Concession Contracts?

Concession agreements, at their best, are a type of outsourcing contracting that allows all stakeholders to benefit from comparative advantage. A government or organization may own assets that it lacks the expertise or finances to utilize successfully. It is conceivable that they could make more than they could alone by outsourcing the creation or management of those resources to others. For example, a government may lack the necessary finances and technological expertise to exploit offshore oil assets. A concession agreement with a global oil corporation can help a government extract oil and create jobs. When a firm engages with an infrastructure advisory firm in the UAE, the firm receives advice on various types of agreements and contracts that can be beneficial in the long term. The suggestion may involve different arrangements, including concession contracts.

The Need for Renegotiating a Concession Contract

As we have seen earlier, a concession contract is a long-term agreement between two parties. During such a long tenure, sometimes situations arise where completion of the assigned development or maintenance work becomes difficult, inadequate, or impossible. For such times, the only measure left between the two parties is renegotiating the concession contract.

Renegotiation is done on various terms, and it is aimed at bringing a solution that speeds the completion of the work and provides a feasible solution to all the stakeholders involved in it.

The following are a few of the tips that make the process of negotiations reasonable and favorable to either party;

• Be well prepared for the negotiation

The most prepared negotiators typically conduct successful renegotiations. No amount of negotiation expertise, talent, or persuasiveness can make up for lack of preparation. Furthermore, none of the other negotiating guidelines can be entirely successful without preparation. You can fully prepare for a successful renegotiation by hiring an infrastructure advisory firm in the UAE.

• Give room to compromise and settle

Most talks require some level of compromise to be effective. Even the most competent negotiators must make some concessions to achieve favorable results. Many negotiators, however, are unable to make substantial concessions because their starting position is too close to their expectation level.

• Propose concessions wisely

Because compromise is essential in contract talks, the most successful negotiators understand when and how to make concessions. The concessions you offer, when you offer them, and how you end up making them will significantly impact the conclusion of your contract’s renegotiation.