Summary and implications The Office of Government Commerce (OGC) has recently published a Policy Note, providing guidance on the effects of EU public procurement rules on development agreements following a series of EU judgments (particularly the 2005 judgment in Auroux and others v Commune of Roanne).

Developers and contracting authorities should be aware of the Policy Note which summarises the key principles in considering whether development projects constitute public sector "works" procurement, which must go out to competitive tender.

Some development projects may fall outside the scope of the procurement rules

The Policy Note summarises the circumstances in which development agreements fall outside the procurement rules. The Policy Note is helpful in bringing a degree of clarity to a complex area of law and in summarising the circumstances in which some types of development agreements may fall outside the scope of the procurement rules:

  • Where a contracting authority sets out only the "broad parameters for a development" in an agreement with a developer and does not impose a detailed design specification, they are unlikely to be entering into a "works contract".
  • Again, some standard design obligations which are intended to ensure that the developer's construction works conform to recognised standards or specifications should not, of themselves, render the agreement a "works contract".
  • Where a contracting authority disposes of land to a developer for the purposes of development, but does not impose a contractual obligation to develop, the parties are unlikely to be entering into a "works contract".
  • The procurement rules do not catch obligations which are ancillary to a property disposal. For example, when a lease from the contracting authority imposes ancillary works obligations to safeguard the authority's interest as landlord, these should not render the agreement a "works contract".

Disappointingly, the Policy Note does not focus on the scenario where a contracting authority has no real alternative to dealing with a developer which already owns land that is critical to a particular development.

It also fails to address the concern that the procurement rules may catch public works obligations in section 106 planning agreements but the OGC does intend to issue further guidance on this point.

What this means for developers and contracting authorities

Whilst the Policy Note is an expression of OGC's views, it has no legal status. It is also worth emphasising the statement in the Policy Note that any artificial arrangements deliberately designed to circumvent the rules are likely to attract challenge.

Nonetheless, the Policy Note does give guidance that, with legal advice, will enable developers and contracting authorities to better measure the level of procurement risk.

Further sanctions for breach

In the context of risk, local authorities and developers should also be aware of the new remedies regulations (effective from 20 December 2009) which provide the courts with a number of new sanctions for breaches of the procurement rules. One of these is to effectively set aside existing contracts!