In Faraday Development Ltd v West Berkshire Council [2018], the Court of Appeal has held Thursday that a development agreement which gives the developer the option to deliver public works later is subject to the public procurement regime. The development agreement has been declared ineffective under the Public Contracts Regulations, a first in the UK. 

The question of when a property transaction is a "public works contract" has been in the news for over 10 years. From the Auroux decision in 2008, the public sector has had to tred carefully when disposing of land with development obligations attached. 

The European Court of Justice has developed significant case law in this area. The public procurement directives apply where a public body appoints a developer to undertake works for it (such as new civil engineering projects), or where works are being delivered which  "correspond[...] to the requirements specified by the contracting authority exercising a decisive influence on the type or design of the work". The developer must be under a positive contractual obligation to undertake the works for the public procurement regime to apply. 

There are a wide variety of "off market" (not subject to OJEU procurement) deals in the UK, where the public sector lawfully disposes of land and then allows the developer to bring forward their own scheme subject to planning and best value obligations. These arrangements need not always fall within the scope of the procurement rules, and so still need a case by case review on the facts and the overall effect of the contract(s). 

The Court of Appeal decision means that arrangements where there are one or more option(s), or phases in a non-procured scheme, need to be checked to ensure that there are no public works being delivered in any phase. A contractual obligation on the developer to undertake public works at some point in the future of the development will, on the basis of this decision, be likely to breach the public procurement rules. 

As regular readers will note, our advice is that voluntary transparency (VEAT) notices are not a 'magic bullet', and this case confirms that VEAT notices will need to contain much more information in order to be suitably transparent in justifying a direct award. 

Our analysis

This is an important case and one which public bodies and their development partners will want to note. 

Any project which is over the financial threshold for works procurement and which involves delivery of public works (at any point in the life of the development agreement) should be assessed for public procurement compliance. The Court's willingness to cancel the development agreement perhaps marks a sea change in the jurisprudence and public policy. 

Appropriate indemnities are more likely to be sought from developers entering into such arrangements, and it may be that we see public bodies simply putting all of their land development opportunities out to tender through the public procurement regime. 

It remains the case that arrangements should be looked at on a case by case basis and a procurement risk assessment undertaken before the contract is entered into. Not all development schemes will trigger the public procurement rules. 

VEAT notices should be used only where the position is clear and the authority can fully justify the approach. From a Brexit perspective, the UK's draft Withdrawal Agreement confirms that the existing public procurement regime will stay in force until the end of the implementation period, currently expected for December 2020.

For more information or advice please contact David Hansom, Partner or your usual contact at Clyde & Co LLP.