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What Is a Concession Agreement?

The signing of a concession agreement allows a company to do business in a certain area in exchange for the terms outlined in the agreement.
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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 26 June 2014
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The term “concession agreement” is used in two slightly different ways in the business world. Both refer to a type of negotiated contract which gives a company the right to do business, with some specific requirements. In one sense, it refers to a contract between a foreign company and a government, in which the company signs a concession agreement so that it can do business in that government's country. In a second sense, this type of agreement is one which grants the concessionaire the exclusive right to do business in a particular area or venue in exchange for some carefully negotiated terms.

When people talk about contracts with foreign companies, a concession agreement is worked out between the company and the government of the nation where it wishes to do business. The government may want to incentivize the company by lowering taxes, relaxing restrictions, or providing other incentives. In cases where the government is not as enthusiastic, the company may need to make some concessions such as ceding some of the profits to the government or paying a special tax rate which may be higher than that of domestic businesses. Once the agreement is negotiated and signed, the company has the right to do business locally under the terms of the agreement.

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Governments may use this type of concession agreement to provide services which they cannot or will not provide. For example, a concession agreement might be signed with a foreign company to allow it to manage the ports or the borders.

In terms of an operating concession, the agreement gives the company an exclusive right to operate in a venue like a sports stadium, a cruise ship, or a government building. In this case, the company operates a concession which may sell food, accessories, and a wide variety of other products. It must pay an annual fee for the right to operate, or give up a percentage of its income to the venue. In exchange for this, the venue agrees not to sign concession contracts with other companies offering similar products or services.

This type of concession agreement is often used when a venue or company wants to make a product or service available, but does not want to be directly involved. On a cruise ship, for example, the line might operate concessions with restaurants and cafes so that it is not responsible for food service. This means that the cruise ship is deprived of some of the potential profits, but also of the problems such as legal liability for tainted food, securing staffing, and organizing supplies.

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Discuss this Article

Monika
Post 3

I can see why a government might sign a concession agreement to get a company to operate in their country when no domestic company can offer the services. However, I cannot imagine a country hiring a foreign company to manage its borders!

It seems like a country might be more likely to sign a concession agreement with a company to sell some kind of cutting edge technology in their country. Or a concession agreement with a company that sells medical supplies or provides a medical service. But to manage the ports and borders? I'm not sure that makes any sense!

JaneAir
Post 2

@starrynight - I agree, the term concession agreement does make me thing of the concession business. Although the term makes a lot of sense when used the other way too. One party is making a concession to the other party so they can do business together.

When I was reading through the article, I was kind of wondering why a company would do something like this. However, I can understand why a government would make some concessions if they really needed to do business with the other party.

So it seems like a concession agreement is probably used the most when one party is at a disadvantage and the other party then has more bargaining power.

starrynight
Post 1

It's interesting that the term "concession agreement" has two different meanings as far as business contracts go. I personally think that business is confusing enough as it is, each term should only mean one thing!

I know when I think concession agreement, I definitely think of the legal agreement between a company and a venue for the company to provide food. Or maybe I'm just a little hungry right now.

Anyway, it stands to reason there should be some type of contract between the two companies. As the article said, the concession company might want the exclusive right to sell concessions at the venue, and of course there are other issues to work out too.

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