The European Union was established to create a single marketplace within the EU. Therefore, special rules apply where public authorities are proposing to enter into contracts whose value exceeds certain specified thresholds. The rules, which are designed to create a level playing field between contractors in different member states, apply to development agreements with local authorities: Auroux v Commune de Roanne C-220/05 [2007] All ER (EC) 918.
R (on the application of Gottlieb) v Winchester City Council [2015] EWHC 231 (Admin); [2015] PLSCS 53 concerned an agreement for the construction of a retail, residential and transport centre in Winchester. The opportunity should have been advertised. However, the council signed an agreement with a developer in breach of EU procurement rules, several years before Roanne, and subsequently granted planning permission for, and made a compulsory purchase order to facilitate, the development.
Meanwhile, the parties had negotiated changes to the development agreement to reflect the fact that the project was not viable on the original terms. However, where a variation to an existing arrangement amounts to a new contract, the contracting authority must first undertake a fresh procurement exercise (even though the variations are made pursuant to provisions in the existing agreement). Did the variations that the parties had negotiated – which relaxed the affordable housing requirement, expunged requirements for a bus station and other civic amenities, and enlarged the site – make such an exercise necessary here?
EU Directive 2014/24/EU (26 February 2014) deals with modifications to public contracts, but has not yet been implemented in the UK. Therefore, the court had to refer to existing case law. In Pressetext Nachrichtenagentur GmbH v Republik Österreich [2008] ECR I-4401, the court stated that a change to a contract might be material if it introduces conditions that would have enabled others to tender, or another tender to be accepted, or if it extends the scope of the contract considerably, or alters the economic balance in favour of the contractor.
The subject matter of the contract had not changed. However, the variations to the agreement had added significantly to the value of the contract to the developer. In addition, the judge decided that the varied contract was materially different in character to the contract that it had superseded because it had been transformed from an unviable contract into a viable one. Importantly, the judge considered that the financial terms between the parties themselves were not the only relevant factor. Variations that increased the potential profits to be obtained from third parties were also relevant to the economic balance between the parties.
Furthermore, a claimant need not identify actual alternative bidders to satisfy Pressetext – so it was not an obstacle that there were none here. The court need only be satisfied, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract, as varied, had it been advertised. The terms of the varied contract were considerably more favourable to the developer and the judge was satisfied that a competitor would have come forward, had the procurement rules been followed.
The judge considered the council’s failure to follow an open, competitive, transparent and non-discriminatory procurement process to be a serious breach of the procurement regime and its decision to vary the development agreement without complying with EU procurement rules to be unlawful.
Allyson Colby Property Law Consultant