EU procurement rules set out a legal framework for procuring contracts for public works or services above a certain value in order to open them up to competition. Where the rules apply, contracts must be advertised in the Official Journal of the European Union and awarded in accordance with fair and transparent procedures. The difficulty that arose in R (on the application of Faraday Development Ltd) v West Berkshire Council [2016] EWHC 2166 (Admin); [2016] PLSCS 240 was that the local authority did not comply with the requirements when it entered into a development agreement to promote the regeneration of a rundown area in Newbury.
The local authority did not have the experience, financial resources or desire to redevelop the site itself and had chosen to enter into a development agreement with a developer instead. It believed that public procurement legislation did not apply because the agreement required the developer to assemble a professional team and prepare project plans and budgets, and to deal with planning and site assembly, without actually requiring the developer to undertake any development at all. Instead, the local authority chose to rely on the developer’s financial commitment to the scheme to ensure its delivery. So it granted the developer options to draw down land in its ownership – and, if the developer were to exercise an option, the subsequent lease or transfer was to include obligations to redevelop that land.
A third party, who was pipped at the post during the tender process, complained that the parties had entered into a public services contract, or that the developer was under an indirect obligation to carry out public works within the scope of the public procurement regime. The court disagreed.
The suggestion that the single main object of the development agreement was the “provision of services” was wholly untenable. That would depend on the provision of the services that the developer had agreed to provide being an end in itself, which it plainly was not. Furthermore, because there was no legally enforceable obligation to carry out works, the procurement regime did not apply to the development agreement.
The judge noted that neither the EU Directive nor the Public Contracts Regulations 2015 contain any general anti-avoidance provisions and that public authorities can choose to enter into contracts that avoid the onerous procurement requirements. Furthermore, sales of land by public authorities do not constitute “public works contracts”, because, under procurement legislation, a public works contract is a contract for the provision of work in which a public authority assumes the position of the buyer.
Whether the successful developer decided to proceed, and impose upon itself an obligation to perform any work, was entirely in its own hands. It was free to “walk away” without carrying out any work at all. The development depended on future market conditions and on the commercial experience, aptitude and commitment of the developer – and the fact that it was very likely to exercise the options, given the considerable time, money and effort that it would already have had to invest in the site, was not a substitute for a legally enforceable obligation. Therefore, the procurement requirements were not engaged.
Allyson Colby, property law consultant
