Concession Contracts, Councils and Coronavirus – can contractual payments be reduced?

TLT has recently assisted a local authority with a multi-million-pound saving by advising on a dispute with one of its long-term suppliers which operates and manages its leisure facilities, and which sought to permanently discount the management fee payments due to the local authority under their concession contract, relying upon the alleged ongoing impact of the coronavirus pandemic on its business.

Background

Many concession contracts are based on the Sport England template, which allows suppliers, such as those managing a local authority’s sport and leisure facilities, to make financial adjustments to the parties’ agreement as a result of a qualifying change in law.

Whilst legal restrictions which meant the closure of such facilities during the pandemic may have constituted a qualifying change in law, now that trading conditions are back to “business as usual”, without evidence of a causal link between the original restrictions and the ongoing losses for the supplier, a supplier’s ability to trigger such financial adjustments provisions is likely to be limited.

It is important for local authorities to carefully review the fine-print of their concession contracts, as suppliers may be looking for opportunities following the pandemic to reduce the ongoing management fees that they are contracted to pay to local authorities by seeking to exploit change in law provisions that may not be applicable, or without sufficient justification. Such pressures can place local authorities between a rock and a hard place, noting their statutory obligations under procurement and subsidy regulations which tie their hands in relation to their ability to agree to vary concession contracts in any event.

Comment

Since the pandemic, whilst it is acknowledged that trading conditions may be challenging for suppliers with high energy costs, inflation and reduced public willingness to pay for leisure subscriptions, resulting in a decrease of income for those suppliers, where a concession contract is in place, we would encourage local authorities to seek legal advice on its terms and their position from a procurement/subsidy law perspective, before agreeing to any variations to the contract or any reductions to their management fees.

TLT has advised local authorities on the interpretation of concession agreements and successfully supported its clients in navigating the legislation and regulatory requirements, including concessions regulations and the position on subsidy controls, whilst trying to maintain an ongoing rapport with their long-term service providers where there are often underlying good commercial relationships there, which both sides want to maintain.

Please do get in touch with us if you have any questions or would like any advice or assistance in this area.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.