A Development Agreement to facilitate regeneration is held by the High Court to fall outside the scope of the Public Contracts Regulations 2015.
Monday, 28th November 2016
The High Court has dismissed a challenge by Faraday Development Limited ("FDL") against West Berkshire District Council ("WBDC").
There were two key aspects of FDL's challenge:
- Whether WBDC had failed to comply with its statutory duty under s123(2) of the Local Government Act 1972 ("LGA 1972"); and
- Whether WBDC acted lawfully in deciding that the bid fell outside of the Public Contract Regulations 2015 ("PCR 2015").
This is the second article in a two part series focusing on the second aspect of FDL's challenge.
WBDC sought advice from Strutt & Parker ("S&P") on the best way to achieve its plans for regeneration. S&P recommended that WBDC proceeded outside the PCR 2015 to cultivate market interest and to balance the uncertainties that surrounded WBDC's plans for regeneration.
WBDC entered into a Development Agreement with St Modwen Developments Limited ("SMDL") on 4 September 2015. Under the Development Agreement, SMDL had to provide a number of services such as preparing project plans and assembling the necessary land interests. SMDL could then elect to acquire and redevelop the land, but they were under no legal obligation to proceed.
The Court rejected FDL's argument that the Development Agreement was a public contract within the scope of the PCR 2015. The Court held that the provision of services contained in the Development Agreement facilitated WBDC's plan for regeneration, but was not its main purpose.
Background to the decision
The Court's decision provides further guidance for local authorities and developers following concerns that the High Court's decision in R (Midlands Co-operative Society Ltd) v Birmingham City Council  was incorrectly decided.
Helmut Müller was the basis for the decision in the Midlands Co-operative case. In Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben (Case C-451/08) the ECJ concluded that procurement legislation would only apply where the agreement imposes a legal obligation on the developer. Where no enforceable contract for works exists, even where there is an expectation that a contract will be entered into, there was no public works contract to which the procurement legislation could apply.
In Midlands Co-operative the High Court found that Tesco was not subject to any legally enforceable obligation to conduct any development works in relation to the land, and so no public works contract had been concluded. However, in Midlands Co-operative Tesco entered into a Section 106 Agreement which imposed obligations on it to carry out works as preconditions to the development. Those obligations were not enforceable unless and until Tesco commenced work on the development; therefore it was open to Tesco not to commence the development. If the judgment in Midlands Co-operative is correct, then provided section 106 agreements are framed so that the obligations they impose are not immediately enforceable but depend on the developer taking some further and voluntary step, they will rarely (if ever) be caught by the procurement legislation.
The decision in the Faraday Case has, perhaps surprisingly, followed Midlands Co-operative on when Development Agreements can lawfully be structured outside the scope of the PCR 2015. The decision has also provided greater understanding regarding collaboration, as the decision indicates that collaborative working is possible without the necessity for an extensive tender process which the Court stated as being "onerous for participants". This is a positive step for contracting authorities carrying out developments, however care should be taken at the outset of each project to determine whether the PCR 2015 will apply to the relationships.