Public procurement and development agreements

30 November, 2018

he public procurement rules are complex.  A Local Authority in particular has to find its way through a myriad of regulations to ensure that what it is doing is lawful.  First of all, if disposing of a land asset, Section 123 of the Local Government Act 1972 provides that the authority has to ensure the best consideration that can reasonably be obtained.  Then, it must establish whether the disposal amounts to a public works contract to which the procurement rules will apply.

A common situation:

  • the authority owns land;
  • the land has development prospects;
  • the best consideration will be obtainable through development;
  • the authority does not have the resource and expertise to realise the potential itself so wishes to ‘partner’ with a developer.

 

That broadly was the scenario in which West Berkshire District Council found itself.  It held a competitive process to identify a suitable developer and entered into a Development Agreement with Faraday Development.  Under the terms of the Development Agreement, Faraday were to provide some pre-development advice and services.  If development proposal came to fruition, Faraday had the option to draw down the land and carry out the development works.

West Berkshire came to the conclusion that the Development Agreement was not subject to the Public Contract Regulations 2006 (which applied at the time but which are now comprised in the 2015 Regulations).   It took this view because there was no obligation on Faraday to carry out any works, it was entirely at Faraday’s call whether to draw down the land and carry out the development.

The authority’s view was challenged but upheld in the High Court.  That decision has now been the subject of review by the Court of Appeal (Faraday Development v West Berkshire Council (2018) EWCA Civ 2532).  The Court of Appeal took a different view, deciding that:

  • the Development Agreement was not a public works contract at the time it was entered into, there being no immediately enforceable obligations to carry out works;
  • it was not a public services contract either because the services to be provided were not the main subject matter of the agreement;
  • BUT the Development Agreement was still unlawful because taken as a whole it committed the authority to procuring works from the developer, if the land was drawn down then there was a public works contract but the authority could not at that stage go through the procurement process;
  • The authority’s actions were both a breach of the Public Contracts Regulations and also of public law because the authority was committing itself to do something unlawful.

This decision has important implications for local authorities and developers alike who must consider very carefully the lawfulness of any arrangement they make.  In particular, local authorities may need some persuasive powers to recruit development partners if those partners are not assured of reaping the rewards of their pre-development services.