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.
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.
