Local authority – Development agreement – Respondent council entering into development agreement with interested party to facilitate regeneration of industrial estate – Whether agreement falling within public procurement legislation – Appeal allowed
In September 2015, the respondent council decided to enter into a development agreement with the interested party to facilitate the comprehensive regeneration of land on an industrial estate in Newbury, of which the respondent was the freehold owner. The appellant company had made an unsuccessful bid for the agreement contract in the respondent’s tender process.
The agreement was structured to avoid imposing any directly or indirectly enforceable obligation on the interested party to carry out or procure works on the industrial estate. It was considered that such an agreement did not need to comply with the public procurement regime as it fell outside the scope of Directive 2004/18/EU and the Public Contracts Regulations 2006 the (legislation in force when the development agreement was entered into) and Directive 2014/24/EU a+nd the Public Contracts Regulations 2015 (the current regime for public procurement) applicable to a “public works contract” or “public service contract”.
The agreement conferred options on the interested party to acquire interests in plots on the estate as they came to be redeveloped. It also required the interested party to prepare project plans and development strategies and obtain relevant planning consents. Although it concluded that the agreement would not amount to a works contract, the respondent published a voluntary transparency notice which referred to the main object of the agreement as “an exempt land transaction” which placed no binding obligation on the interested party.
The appellant challenged the lawfulness of the respondent’s decision to award the development agreement to the interested party. The High Court dismissed the appellant’s claim under the Public Contracts Regulations 2015, on the basis that the agreement did not constitute a public works contract or a public services contract as defined in the 2004 Directive and the Public Contracts Regulations 2006: [2016] EWHC 2166 (Admin); [2016] PLSCS 240. The appellant appealed.
Held: The appeal was allowed.
(1) The development agreement was not a public works contract when it was concluded because the obligations of the interested party to carry out works under the agreement, though plainly directed to the object of that contract, were for the moment contingent obligations. Contingent obligations did not suffice, at any rate where the relevant contingency lay within the contractor’s control. The relevant definitions in the 2004 Directive were in broad terms and did not refer explicitly to obligations, immediately enforceable obligations or contingent obligations. The definition of a “public contract” in article 1(2) of the Directive identified four main constituents of such a contract: that it was for pecuniary interest; in writing; entered into by an economic operator and a contracting authority; and had as its object the execution of works, the supply of products or the provision of services. The development agreement in the present case fulfilled those basic requirements. A transaction would not fall within the definition of a “public works contract” unless it involved the contractor assuming an obligation. In resolving the question of whether a relevant obligation had to be immediately enforceable, the court had to establish the true nature of the development agreement. The object of the agreement was the execution of development works on the land, in accordance with the local authority’s aspirations, which was to be contrasted with agreements for the sale of land without any attendant obligations, immediate or contingent, for the carrying out of works, only the expectation of such a contract sometime in the future: Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben (Case C-451/08) [2011] PTSR 200 considered.
(2) The present agreement was a contract in which a mechanism had been put in place for the implementation of development works to give effect to the respondent’s intended regeneration of the land. It provided for the precise extent and effect of those obligations, and for the precise circumstances in which they were to become effective. The respondent had reserved ample control over the works, even though the precise parameters remained unspecified. The agreement left the fulfilment of the contingency in the control of the interested party. The contingency was fulfilled only if the interested party proceeded to draw down the land. Once that was done, mutually binding obligations would take effect under the agreement. The respondent had made a legally enforceable decision to commit itself to that arrangement, and thereby bound itself as contracting authority to the interested party as economic operator. The developer had committed itself to the obligations that were immediately enforceable and, contingently, to those that were not, but it remained, until the contingency was fulfilled, uncommitted to some of its contractual tasks as developer, including the execution of the development works. To that extent, it was free to walk away. Moreover, the development agreement was not a public services contract, even though it included immediate services obligations, because the main object of the agreement was the carrying out of works.
(3) However, entry into the development agreement was unlawful because the substance of the arrangements as a whole involved the respondent committing itself to the procurement of works from the interested party. Although there must have been good commercial reasons for the parties constructing the development agreement as they had, there had been a procurement of development that did not undergo the requisite procurement procedure. If the interested party later decided to draw down the land, a public works contract would come into being and it would be too late to carry out the required procedure, which would defeat the operation of the legislative regime.
(4) The development agreement was not saved by the voluntary transparency notice, which did not meet the standards laid down by the Court of Justice in Ministero dell’Interno v Fastweb SpA (Case C-19/13) [2015] .PTSR 111. The notice, in referring to a land transaction and to binding obligations being absent, did not mention the detailed provisions for the design and execution of a large development, and so did not sufficiently indicate the nature of the transaction. The sum effect was a failure to give an adequate justification for the respondent’s decision to proceed as it did. Regulation 47K(4) of the 2006 regulations required a “description of the object of the contract”, and a “justification” of the authority’s decision to award it without prior advertisement. The requirements in regulation 47K(4)(a)(ii) and (iii) had not properly been complied with. It was not a valid notice and was not effective to prevent the court making a “declaration of ineffectiveness” if that remedy was justified.
Nigel Giffin QC and Charles Banner (instructed by DAC Beachcroft LLP) appeared for the appellant; David Elvin QC and Joseph Barrett (instructed by Womble Bond Dickinson (UK) LLP) appeared for the respondent; The interested party did not appear and was not represented.
Eileen O’Grady, barrister
