A recent case[1] concerning a Local Authority’s procurement of redevelopment services demonstrates that where the contract is structured primarily as a contract for business and project planning, with an option to carry out the development, it may escape EU procurement rules.
The procurement related to the redevelopment of an industrial estate in Newbury, to which West Berkshire District Council (The Council) owned most of the freehold. The claimant, Faraday Development Limited (Faraday) had entered into a Joint Venture Agreement with Wilson Bowden Developments Limited (WB) to develop the land. Faraday had significant leasehold interests in the land and had obtained planning permission for development of the site. Faraday entered into negotiations with The Council for a consolidated lease on the site but these were subsequently abandoned.
The Council then put out a tender for the regeneration of the regeneration of the estate. The tender was structured in such a way that the winning bidder would be required to create a project plan and development strategy for the project, as well as obtain planning permission, and would then be able to elect to redevelop the land at its discretion.
WB submitted a bid for this tender but lost by a narrow margin. In the council’s report it was said that there was very little difference in financial terms between the two leading bids, but that the winning bid had a lower risk profile.
Faraday challenged the decision, arguing that The Council had:
Failed to obtain the best reasonable consideration for the land as per S123 Local Government Act 1972 (LGA). Given that there had been insufficient financial evidence to differentiate between the bids, W argued that the Council was obliged to investigate bids further in order to determine which bid offered the best consideration.
Unlawfully decided not to comply with EU procurement regime related to public works and service contracts under the Public Contracts Regulations 2015 (PCA).
Considering the first ground, the High Court held that given the uncertainties presented by the project, it was not unreasonable to look at the way in which the provider managed risk in order to assess which provider would provide the best consideration, and that therefore the council was in compliance with the legislation.
Considering the second ground, the court decided that the rules under the PCA were inapplicable for the following 2 reasons:
The contract was not a services contract, which must have as its object the provision of services. The High Court found in this case that the services provided in delivering the development were not an end in themselves and that the true object was the achievement of the relevant regeneration or redevelopment.
Neither was the contract a works contract, as no enforceable obligation was imposed on the winning bidder to carry out the actual redevelopment work on the land and the Local Authority were free to undertake this work at their discretion.
This case is an illustrative example of how a council might structure a development agreement to fall outside of the relevant EU procurement regime, as well as a reminder that ‘best consideration reasonably obtainable’ under Section 123 LGA need not be entirely limited to the headline value of the disposal. The judgement is currently under appeal.
[1] R (Faraday Development Ltd) v West Berkshire Council and another [2016]