TOWARDS A CONCESSION SYSTEM ?

This most recent development within the British system suggests that the professional system may be starting to decline, and that a fundamental transformation is taking place. The essence of the shift is that the producer of the built product is being increasingly asked to finance the production process against a return from the cash flow from its exploitation. Although this has long been the case with the speculative system, this was orientated towards the valorisation of land, and relatively little capital was involved with each unit. Increasingly, both within the UK and internationally, concession contracting is becoming an option. It has myriad forms - ranging from contracts for the supply of social housing in volume build contracts, to the types of large infrastructure projects being studied by Le Groupe. In the UK this development has been institutionalised in the Private Finance Initiative. The concession is a radical innovation in the context of the British contracting system, and a concept unknown in English law (Marcou 1992). The railways and canals were not promoted on the basis of concessions, but charters. Dobbin (1994) in his study of railway building uses the terms interchangeably to apply to the British situation, but they are, in fact, very different. The concession is an instrument of public policy, and the project is promoted by the state. Concessionaires are invited to finance the construction of the facility and recoup their costs through its exploitation for a determinate period of time before the facility reverts to the state. Under the charter, the promoter is private and the charter is an instrument of private interest where that interest affects the property rights of others, and the state makes no financial guarantees. While the promoter similarly recoups its costs from the exploitation of the facility, that exploitation is normally indeterminate in length. In the former, the principal asset upon which finance is secured is the concession agreement; in the latter it is the real assets generated by the project. The promotion of infrastructure projects on the basis of pure charters became must less important after 1866, and financiers became more wary and the supply of viable projects dried up. In Ireland, the British government was obliged to provide soft loans to make the railways viable (Joby 1983), while in India the East India Company offered interest payment guarantees to encourage contractors to build the lines on the basis of a 99 year concession. This proved to be an expensive way to build railways, and after the implementation of direct imperial rule, the government built the lines itself from 1870 on. On continental Europe, the British contractors were happy to work as concessionaires - by 1855 Thomas Brassey had built three quarters of the railways in France, and became known as il re degli intraprenditori in Italy (Middlemas 1963), while with Peto and Betts he built the Royal Danish Railway in Jutland (Joby 1983). It was only in Great Britain that the provision of vital infrastructure remained purely a private sector matter. The Private Finance Initiative is presently being heavily promoted by the government as a way of minimising public sector debt and to move, as one government minister put it, to "the end of the BAD old days - Build and Disappear" (cited Financial Times 4/4/96). There is a deliberate attempt to shift the reward structure within the contracting system so that construction and exploitation risks are carried by the same concessionaire, rather than the latter being taken by the final client. However there is a paradox at the heart of concession contracting. This is between the interest of the state in ensuring the continued availability of an element of infrastructure in the public interest, and the private interest of withdrawing from a business that is not longer profitable. As the French experience shows (Marcou 1992; Martinand 1993), the inevitable outcome of such a paradox is that the state retakes responsibility for the infrastructure element to ensure its public policy objectives. This may yet be the fate of the Channel Tunnel if its present financial problems cannot be resolved. However, so far as the construction process is concerned, these are not matters of immediate concern. Although the financing of the production process by the producer is not unknown in British construction - indeed it is at the heart of the speculative system - this new form of organisation of the construction process does represent a radical departure, and warrants a new appellation. I have chosen concession system because it is this type of contract which marks out the innovation. The concession system is not speculative - it is normally in response to a clear call for tenders from the client, and often the exploitation of the built facility is subject to elements of guarantee. Within the concession systems not only is the role of finance very different, but the professional autonomy of the actors is subsumed under the concession contractor, who is almost always a general contractor by background. Bowley's package deals come of age.