Whether the tendering process for the award of development contract needs to comply with the Public Contracts Regulations 2015 (the Regulations) is often a complicated question. The Administrative Court has recently provided more clarity around circumstances in which such contracts will not be required to comply with those Regulations.

In a recent case[1], a council entered into a development agreement to assist with the regeneration of an area in Berkshire. A tendering process was conducted to select a developer, but the process did not comply with the Regulations. A claim was brought seeking to allege that the regulations should have applied.

The development agreement in question required the developer to compile plans, strategies and appraisals and apply for planning permissions. However, once these were approved the developer had a choice about whether to acquire the land and carry out the redevelopment or not. It was not obliged to do so under the contract. The developer had a commercial incentive to do so as it had committed to master planning the whole site and amongst other things had the opportunity of carrying out a profitable development.

The Court found that an essential character of a ‘public contract’, which must be tendered pursuant to the Regulations, was that it placed the contractor under a legal obligation to carry out the works.  That was not the case here given the way the contract was structured. An indirect obligation to carry out works would be sufficient to make it a public contract. However, an indirect obligation meant an obligation to carry out works through a third party (such as subcontractors), it was not a general anti-voidance device.  Nor was it a services contract as although the developer was under an obligation to services, they were not the main object of the agreement.

The most interesting aspect of the judgment was the Court’s treatment of the argument that the council had deliberately tried to avoid the application of the Regulations.  The Court found that it was not unlawful to seek to avoid the application of the Regulations and that they do not contain any general anti-avoidance provision.

Of course, Regulation 18(2) does state that the design of a procurement shall not be made with the intention of excluding it from the scope of the Regulations.  Under Regulation 2(1), a procurement is a procurement of a public contract. It seems then that the Court’s reasoning is that authorities are free to structure procurements so they do not lead to a public contract being formed.

The case provides interesting commentary on the ways in which the Court will assess development agreements and the way in which the Court deals with avoidance.  With careful structuring of these agreements it is possible (providing there are commercial grounds to justify doing so) to ensure that development agreements do not need to comply with the public procurement regulations.

This post was edited by Neil Warner. For more information, contact blogs@gateleyplc.com

[1] R (Faraday Development Ltd) v West Berkshire District Council [2016] EWHC 2166 (Admin)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.