Out-Law News 3 min. read

High Court: West Berkshire redevelopment plans not subject to procurement rules


A development agreement (DA) covering the planned regeneration of an industrial estate in West Berkshire is not a public contract that should be covered by the EU's procurement rules, according to the High Court.

Faraday Development Ltd (FDL), which had unsuccessfully bid for the redevelopment work as part of a joint venture, had attempted to argue that the local authority had deliberately structured the work in such a way as to avoid the obligations set out in the 2015 Public Contracts Regulations (PCRs). The company also claimed that West Berkshire Council had failed to obtain the best consideration reasonably available for the land when it entered into the DA with rival developers St Modwen, which was a breach of the 1972 Local Government Act and EU state aid rules.

In a lengthy judgment, Mr Justice Holgate found that there was "no substance" to any of FDL's criticisms of the award, which "completely fail[ed] to acknowledge the context in which [the authority] was acting". The council's intention was to retain the site as an income generating asset, while transferring all the risks of the redevelopment to the private sector, he found. The terms of the DA were such that the obligation to carry out redevelopment work may not in fact ever come into existence, he said.

According to the judge, it is a "well-established principle" that the PCRs only govern those contracts which have as their "main object" one or more of the three types of 'public contract' set out in the corresponding EU legislation. They do not govern, for example, a transfer of land with public works attached where those works are "merely incidental to that contract rather than its main object", he said.

FDL argued that St Modwen, as successful bidder, was subject to a number of "direct obligations" by virtue of the DA; and that the nature of these obligations was enough to amount to "an indirect obligation on [St Modwen] to carry out public works and engage the public procurement regime". These obligations included dealing with master planning, obtaining planning approvals and negotiating for outstanding land interests at the site, on which it plans to construct new private and affordable housing, office and retail space.

However, the judge said that FDL's reliance on 'indirect' obligations "[flew] in the face of the express language" of the provisions contained in the EU's revised public procurement directive, which was given effect to in England and Wales through the PCRs.

"When the most recent directive came to be drafted and adopted there was an opportunity to widen the concept of an 'indirect obligation' if it had been thought appropriate to do so as an anti-avoidance measure," he said. "That step was not taken."

"[W]hen the DA was entered into, [St Modwen] did not become subject to an obligation enforceable by [West Berkshire] to carry out 'works'. Any such obligation is entirely confined to any ground lease or freehold which [St Modwen] opts to take in accordance with the DA ... [I]t is common ground that redevelopment of the site will be a long and complex process dependent upon (inter alia) achieving the relocation of existing occupiers, market and best value testing and obtaining planning approvals," the judge said.

"[W]hether, and if so the extent to which, [St Modwen] exercises its future right to draw down land (on terms that it carries out redevelopment) will depend upon future market conditions and circumstances. In summary, therefore, [St Modwen] is free under the DA to 'walk away', in the sense that it can choose not to come under an obligation to acquire and carry out works on any of the development land in the [site]," he said.

Similarly, the DA did not contain a "deferred" obligation requiring St Modwen to carry out redevelopment works, because "that obligation may never come into existence", the judge said.

"The arrangement is plainly analogous to option arrangements which [FDL] accepts fall outside the scope of the public procurement regime," he said.

Procurement expert Christopher Murray of Pinsent Masons, the law firm behind Out-Law.com, said: "This is the first significant decision since the introduction of the 2015 Regulations and it is interesting that the Court dealt in detail with the issue of anti-avoidance, but didn’t specifically refer to the new rule under Regulation 18 which prohibits contracting authorities from intentionally designing their procurement processes in such a way as to exclude them from the scope of the PCR."

"The decision is a useful tool for contracting authorities and developers when structuring projects outside the scope of the procurement regulations," said Murray. "It gives authorities greater flexibility in considering the options available and may result in a greater number of development projects proceeding without a full competition. It also highlights the importance of obtaining clear commercial advice to defend any subsequent argument that a particular deal did not achieve best value for the public purse in terms of the Local Government Act and EU state aid rules."

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