Legal

Faraday v West Berks: EU procurement rules OK

8 January 2019 | By Lucy Doran, Assad Maqbool

A legal row over a development agreement between St Modwen and a local authority provided a clarification about procurement rules for public works contracts. Lucy Doran and Assad Maqbool explain.

Assad Maqbool, Lucy Doran

Regeneration projects involving EU procurement rules are seen by some as costly, inflexible, and uncommercial. Clients sometimes seek ways to ensure their contracts are not subject to such regulation. 

On 15 November 2018, a court of appeal judgement for Faraday Development v West Berkshire Council overturned the high court decision, clarified rules on public works contracts and concluded a proposed regeneration scheme in Newbury was subject to full EU procurement processes.

The council had entered an agreement with St Modwen Developments for the disposal of land on an industrial estate east of Newbury town centre. This involved the council and St Modwen agreeing development strategies for each plot and allowed the latter to exercise an option to transfer the ground lease.

In this scenario, St Modwen would have to develop the land according to the local authority’s detailed requirements.

A rival developer, Faraday, challenged the council in the high court, arguing that the development agreement was a public works contract, obliging the developer to carry out works for a public authority, so should have been subject to a full EU procurement process.

The court of appeal held that, while the development agreement did not impose binding works obligations on St Modwen, once it exercised its option to lease the land, an enforceable public works contract would come into existence. This made it a regulated contract which should have been publicly procured.

The principle that this case entrenches is not a surprising one in light of existing European cases. Essentially, if a public authority enters into an agreement with a private sector party, which is then obliged to carry out works, no matter how the deal is structured, the presumption should be that the agreement will be subject to EU procurement processes.

“The importance is highlighted by the court issuing the first ever declaration of ineffectiveness in England and Wales.”

The other interesting aspect of the judgement is the treatment of voluntary ex-ante transparency (VEAT) notices. Public authorities use these notices to transparently notify interested parties of intended arrangements which might fall outside strict compliance with public procurement rules.

A properly issued VEAT notice will mitigate the risk of a contract being declared void for failing to comply with EU rules.

The court held that the wording in the VEAT notice issued by the council did not provide sufficient detail about the works obligations in the development agreement, and that the justification for being a non-regulated contract was incorrect.

Therefore, the VEAT notice was not valid and did not act as a defence to Faraday’s claim. The importance of this is highlighted by the court issuing the first ever declaration of ineffectiveness in England and Wales, rendering the contract prospectively void and requiring it to be unwound.

The decision confirms that contracts committing the developer to undertake full work obligations will ordinarily fall within the procurement rules. This should not be seen as an end to non-procurable land arrangements between the private and public sector – a number of models are still compliant and this will continue to be the case.

Helpfully, the court also confirmed the view that section 106 agreements are not public works contracts and so remain outside the EU procurement regime. As a result, contracting authorities may continue to style development transactions as straightforward land deals and rely on the planning process to ensure that the land is used for the purposes that they require.

Lucy Doran and Assad Maqbool are partners at Trowers & Hamlins

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