A recent case has determined that the transfer of land from a local authority to a purchaser is not of itself a procurable contract under European Directive 2004/18 and the Public Contracts Regulations 2006 (PCR). This would still be the case if the transfer included conditions precedent which would claw back the land if certain objectives are not achieved.
However, if there are conditions precedent to the transfer which involve works on the site, then there is a risk that the main purpose of the contract could be interpreted as a procurable works contract.
The case in question was R. (on the application of Midlands Co-operative Society Ltd) v Birmingham City Council. Here it was held that there was no contravention of Directive 2004/18 and the PCR where a parcel of land (comprising a bowling and community facility) was sold by Birmingham City Council to a developer. The basis of the decision was that the developer was not under any legally enforceable obligation to perform any relevant construction works falling within the scope of a public works contract. The case has effectively shown that Flensburg, the leading European Commission judgement on this issue is sound law at national level.
The facts of the case were briefly as follows:
- A tendering process was initiated by the Council which was limited to two developers (Tesco and Midlands Co-operative Society) to provide replacement bowling and community centre facilities secured in accordance with a section 106 agreement under the Town and Country Planning Act 1990.
- The Council was required to re-tender the project three times, firstly due to a complaint by Midlands Coop about the tender process, and secondly because there was no bid that the LA regarded as acceptable.
- During the third tender, in order for the transaction to fall outside the PCR and for certainty as to delivery of replacement facilities, the Council entered into a contract with Tesco for the sale of the land. Midlands Co-op refused to bid.
- It then transpired that the community facilities would be relocated and therefore Tesco would not provide the replacement facilities. Midlands Co-op applied for judicial review of the process, arguing that the disposal contravened Directive 2004/18 and the PCR and that the Council had breached its duty by failing to obtain best value for its interests under the Local Government Act 1972 (LGA).
Midlands Co-op’s application was refused. The court found that the procurement requirements did not apply since Tesco was not under any legally enforceable obligation to perform construction works that could be said to fall with the scope of a public works contract.
Also, section 123(2) of the LGA gives councils a power (not a duty) to provide recreational facilities and there was no evidence that the replacement facilities would require works to be undertaken by Tesco.