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A landmark ruling will make delivering outside the EU procurement regime more daunting

A Court of Appeal judgement last month has ramifications for the way public sector landowners engage with developers, explains Rebecca Rees

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“It will become increasingly daunting for public sector landowners to deliver housing developments of scale outside of the public procurement regime” writes Rebecca Rees of @Trowers

“Public sector landowners need to be able to proactively engage with developers who bring forward good regeneration opportunities” writes Rebecca Rees of @Trowers #ukhousing

“The Court of Appeal held that the agreement was a public works contract, it should have been procured via an EU-regulated process” Rebecca Rees of @Trowers explains the significance of a recent landmark judgement #ukhousing

Following the recent judgement of the Court of Appeal ruling in Faraday v West Berkshire Council and the advancing dawn of Brexit day, it will become increasingly daunting for public sector landowners to deliver housing developments of scale outside of the public procurement regime in a way that takes into account market conditions and the market ‘known unknowns’ faced by developers and house builders.

Given pressures on time, budgets and the need to meet challenging housing targets, is this the right direction of travel?

The facts of the Faraday case are replicated up and down the country.

West Berkshire Council wanted a site – the London Road Industrial Estate in Newbury – developed and regenerated.

Significant prior discussions had been undertaken with Faraday Developments (the leasehold owner of a number of plots on the site). Faraday subsequently competed as part of a consortium in a non-EU-regulated competition run by the council’s land agents. The other participant was St Modwen Developments Limited. St Modwen’s bid won.


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Reasons for the decision included St Modwen’s significant expertise and experience in dealing with the specific project risks, including land assembly, relocation and changes in market condition – all of which could affect the viability of the scheme moving forward.

Faraday challenged the decision by the council to award. The first time round, the High Court concluded that the agreement did not create an enforceable obligation on St Modwen to carry out the redevelopment and so it was not a public works contract for the purposes of the public procurement rules.

The Court of Appeal, however, accepted that while the agreement was not a public works contract when it was entered into, it became one later on, when an option to acquire the land was exercised by St Modwen and the works obligations crystallised.

Up until that point, however, St Modwen was not committed to develop the site at all. Nevertheless, the Court of Appeal held that, taken as a whole, the agreement was a public works contract, it should have been procured via an EU-regulated process and, as it was not, should be declared ineffective (the first time that this remedy has been used in England).

A civil financial penalty of £1 was awarded. This is of note in itself, given that the penalty is supposed to be “proportionate, effective and dissuasive”.

“The Court of Appeal held that the agreement was a public works contract, it should have been procured via an EU-regulated process and, as it was not, should be declared ineffective.”

While not particularly dissuasive, the paltry amount perhaps reflects the court’s recognition of the commercial reality of the council trying to structure flexible deals in response to marketplace risk issues and its acceptance of the council’s argument that it had not designed the agreement with the aim of unlawfully avoiding the public procurement regime.

The policy issues affected by this judgement are important, and the courts (both domestic and European) are mindful of treading on the toes of a council’s planning powers and introducing an unwanted role for procurement in the exercise of such powers.

To that end, the judgement clearly puts a protective ring around planning agreements entered into by a council in its role as ‘local planning authority’ and distinguishes them from where the council has chosen to specify works as a landowner or delivery partner.

The judgement is consistent with European and domestic case law that seeks to keep planning and procurement activities very separate.

Finally, the court’s (over) rigorous application of previous case law in respect of the use of ‘Voluntary Transparency Notices’ in the Official Journal (a device by which a council can announce a direct award of a contract and then observe a 10-day standstill period in order to avoid a subsequent declaration of ineffectiveness) will make clients and their lawyers think again about how and when to use it. The result is slightly bizarre in that the notice did exactly what it was supposed to – it gave Faraday sufficient information to allow it to raise its challenge; nevertheless, the contract was declared ineffective.

“Public sector landowners need to be able to proactively engage with developers who bring forward good regeneration opportunities.”

The judgement is a clear warning to avoid procurement-slang in the notices and make sure disclosure is full and frank.

Moving forward, public sector landowners need to be able to proactively engage with developers who bring forward good regeneration opportunities.

Legal agreements need to address the commercial risks of a development, to the satisfaction of developers, and genuine attempts to structure a regeneration agreement outside of the public procurement regime will need to be carefully assessed in light of Faraday.

It is acknowledged that planning and procurement must remain separate, but navigation in this area needs a clear legal route map.

Rebecca Rees, partner, Trowers & Hamlins

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