Development agreements and the Public Contracts Regulations 2015

Recently the Court of Appeal handed down Judgement in the case of Faraday v West Berkshire [2018] EWCA 2532.  This case addressed a number of important issues for those dealing with public contracts and procurement processes in accordance with the Public Contracts Regulations 2015 (‘PCRs’).  

The case itself was concerned with a development agreement, but there are important points for all contracting authorities and bidders to take on board.

Briefly, in 2015 West Berkshire Council entered into a Development Agreement with St Modwen Developments Limited (the Developer) to regenerate land owned by the Council.  The Council did not go through a tender process pursuant to the PCRs when entering into the contract; instead it published a Voluntary Transparency Notice (‘VEAT notice’) which set out that in the main the contract was an exempt land transaction, and that there was no binding agreement with the Developer to carry out the development works, therefore the PCRs were not engaged.  The obligation to carry out development works would only arise later, if the Developer exercised an option to draw down the land.

Faraday Development Limited challenged the decision to enter into the Development Agreement for a number of reasons.  In essence, they argued that the Development Agreement was a ‘public works contract’ and that the decision not to comply with the PCRs procurement regime was unlawful.

The Court of Appeal held that the Development Agreement in question was not a public works contract at the time that it was entered into.  However, the Court also said that the decision to enter into the agreement without complying with the PCRs was unlawful because it committed the Council to procuring works from the Developer later in time.  Once the Developer exercised the option to draw down the land, a public works contract would come into existence and at that point it would be too late to go through a lawful procurement process.  This was a breach of the PCRs because it meant that the Council had committed to act unlawfully in the future.

The Court also held that the fact the Council had published a VEAT notice did not assist the authority in this case.  VEAT notices can prevent declarations of ineffectiveness from being made in situations where the authority awarding the contract did not believe they had to run a tender process in accordance with the PCRs.  However, the Court held that the VEAT notice here did not give enough detail about the contract to enable a third party to decide whether or not to challenge the authority’s decision, and therefore it could not be relied upon as a defence to a declaration of ineffectiveness.

The Court of Appeal therefore made a declaration of ineffectiveness in respect of the Development Agreement.  The Council in this case was refused permission to apply to the Supreme Court.  This changes the landscape in relation to Development Agreements and the application of the PCRs, so authorities and developers will need to proceed with caution and make sure that any VEAT notices published give full details of the proposed development.

Our procurement experts regularly advise on the issues raised in this case and other procurement matters, whether you are tendering for contracts or looking to challenge a decision once it has been made.  Please contact us for more information.