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Service concession arrangements are increasingly prevalent as governments or public sector reporting entities (“grantors”) look for ways to outsource public services that involve infrastructure that is costly to construct, maintain, or operate.
In a service concession arrangement, a grantor (a government or government agency) grants an operator (a private-sector entity) the right to operate and maintain the grantor’s infrastructure for a period of time. Typical forms of grantor infrastructure involved in service concession arrangements include airports, toll roads, bridges, hospitals, schools, prisons, and more. The infrastructure might already exist or the operator may also be engaged to construct the infrastructure as part of the concession arrangement. Other service concession arrangements may involve significant upgrades to existing infrastructure.
The grantor may pay the operator as the services are performed over the concession term or, often, the operator is given the right to charge the public to use the infrastructure (for example, tolls that are charged to drivers for use of a road or bridge). The grantor might also guarantee a minimum amount of user fees.
The accounting for service concession arrangements is governed by ASC 853, Service Concession Arrangements.
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