EU procurement rules set out a legal framework for procuring contracts for public works above a certain value in order to open them up to competition. Where the rules apply, contracts must be advertised and awarded in accordance with fair and transparent procedures. The current regime for public procurement is set out in Directive 2014/24/EU and the Public Contracts Regulations 2015.
The question that arose in R (on the application of Faraday Development Ltd) v West Berkshire Council [2018] EWCA Civ 2532; [2018] PLSCS 200 was: was a local authority in breach of the requirements because it had entered into a development agreement containing contingent obligations on the part of the developer to develop the authority’s land? The land was situated in a run down area in Newbury and needed regeneration. But the local authority did not have the experience, financial resources or desire to redevelop the site itself. So it entered into a development agreement with a developer instead.
The local authority believed that the Public Contracts Regulations 2006 (which were then in force) 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 it to undertake any development at all. Instead, the local authority relied on the developer’s financial commitment to the scheme to ensure its delivery – and granted the developer options to draw down the land. If the developer were to exercise an option, the subsequent lease or transfer would then include obligations to redevelop.
A third party, who was pipped at the post during the tender process, complained. But the High Court ruled that the obligations to develop might never come into existence – and a contract does not fall within the procurement regime unless a contractor has a legally enforceable obligation to undertake work: Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben [2011] PTSR 200 and R (on the application of Midlands Co-operative Society Ltd) v Birmingham City Council [2012] EWHC 620 (Admin). But the Court of Appeal has overturned the decision.
Lord Justice Lindblom, who spoke for the court, accepted that the development agreement was not yet a “public works contract” for the purposes of the procurement regime. But, as soon as the developer exercised its option and drew down land, a “public works contract” would come into being and it would be too late to go through the procurement process then. So the question was: could the local authority commit itself to entering into such a contract in the future, without following the procurement rules, and in so doing defeat the operation of the legislative regime?
The proposition that a local authority could lawfully grant a developer an option to require it to act unlawfully in the future was startling – and wrong. The court must look at the relevant contractual arrangements, and the several stages of a “multi-stage” process, as a whole to see whether a contracting authority has procured, or committed itself to procuring, works from an economic operator. In this case, the local authority had done just that by engaging in a procurement, which would crystallise when the developer drew down the land, without following the requisite procurement procedure. So the court was able to make a declaration of ineffectiveness – although it left its decision about the remedy that was appropriate to a later date.
Allyson Colby, property law consultant
