Public procurement and development agreements

In broad terms the object of EU procurement rules is to ensure that public bodies award certain contracts above a minimum value only after fair competition. When the regime applies, a prescribed procurement process must be followed.

Public procurement rules can be a minefield for developers intending to enter into a contract with a local authority – and indeed for the authorities themselves. This is vividly illustrated in Faraday Development Ltd v West Berkshire Council and another [2018] EWCA Civ 2532.

The Council entered into an agreement with a developer for the comprehensive redevelopment and regeneration of an area of council land. Under the agreement, the developer had to fulfil certain preliminary requirements, including obtaining planning permission for the proposed development. If it achieved these, the developer had an option to acquire the land and if it did so, it was then under an obligation to carry out the development in accordance with the terms of the agreement.

The Council did not undertake a public procurement process before entering into the development agreement. Instead, it issued a “voluntary transparency notice” stating that it believed that the agreement fell outside the scope of the public procurement regime as it was not a “public works contract” to which the regime applied. A critical argument in support of this was that the agreement placed no immediate binding obligation on the developer to undertake any development works and that this was required to trigger the procurement process.

The Court of Appeal disagreed. While the development agreement was not immediately a public works contract as it contained no immediately enforceable obligations on the developer to carry out works, by entering into the agreement the Council committed itself contractually to procure works from the developer in the event that the developer chose to exercise the option in its favour. The development agreement therefore constituted a procurement and the procurement process should have been followed.

The consequences? The voluntary transparency notice was invalid and the Court made a “declaration of ineffectiveness” terminating the development agreement.

The case is to be welcomed for clarifying that contingent obligations on the part of a developer, not only immediate obligations, can trigger the public procurement process and also that a voluntary transparency notice issued by a council will not necessarily save the day.