Exclusion of Property Deals from the Public Procurement Rules under increased threatMonday, 14 January 2019
The ability of cash-strapped public authorities to develop their lands or leverage their property assets to secure much needed infrastructure without triggering National or EU public procurement rules is likely to become increasingly difficult if the Irish Courts follow the findings of the UK Court of Appeal in Faraday Development Ltd V West Berkshire Council  EWCA Civ 2532.
In the Court of Appeal decision of 14 November 2018, the Court allowed an appeal to the previous controversial decision by the High Court of 26 August 2016 [SR1] that a contractual arrangement between the West Berkshire Council and St. Modwen Developments Ltd for the purposes of facilitating urban development in Newbury did not constitute a “public works contract” and therefore was not required to be awarded in compliance with UK and EU public procurement rules.
The main elements of the Development Agreement were that the developer would come up with proposals for the development of parcels of Council land which would be submitted to a steering group (where the Developer and Council had equal voices). Subject to receipt of approval from the steering group and compliance with certain conditions the Developer had the option to draw down the parcel of land under a long lease. If the Developer chose not to exercise the option, it would be under no obligation to execute the works.
The Court of Appeal determined that:
- The Development Agreement was not a public works contract at the time of its execution as there was no legal obligation on the Developer at that point to carry out the works.
- However, taking the arrangement as a whole, the Court found that the Council in entering into the Development Agreement had breached both the UK Public Procurement Regulations and Public Law because if the Developer did draw down the parcel of land a public works contract would come into being as the works would be required to be implemented in accordance with the terms of the Development Agreement without the opportunity for the relevant works to have been advertised in accordance with the applicable public procurement rules.
- That the development agreement was “not simply a land sale with the aspiration that works will be carried out – as in Helmut Muller1” case. “It is a contract for pecuniary interest whose object, explicitly, is the execution of works, and which makes detailed provision for the carrying out of a development involving the execution of works by St Modwen in accordance with council’s requirements.”(Paragraph 38)
- The publication of voluntary ex ante transparency VEAT notice by the Council was not sufficient to act a shield against the remedy of ineffectiveness as the notice was over simplistic and misleading.
- The Court granted a declaration of ineffectiveness for the first time in an English Court since the introduction of the remedy in 2009.
Key Potential Implications for Public Authorities
The judgement provides further guidance for public authorities in determining the possible application of public procurement law to property development arrangements. The decision provides insight into what is likely to constitute a “public works contract” for the purposes of the procurement rules in particular by looking at the transaction/arrangement as a whole.
While each proposed property/development transaction needs to be examined on its own basis public authorities should be mindful of the above decision in planning any such arrangement.
For further information on this case or general procurement law advice, please contact Fergal Ruane or any member of the ByrneWallace Procurement Law Team.
1 Helmut Muller GmbH v Bundesanstalt fur Immobilienaufgaben Case C-451/08