R (Faraday Development Ltd) v West Berkshire Council and another [2016] EWHC 2166

This case concerned a challenge to a development agreement entered into between West Berkshire Council (the “Council”) and St Modwen Developments Limited (“SMDL”) to regenerate an area of industrial land owned by the Council. The development agreement was entered into following the completion of a tender process which was conducted outside the scope of the EU procurement rules. Following the completion of the process, the Council published a voluntary ex-ante notice (“VEAT”) in the Official Journal of the EU stating that it considered the development agreement to fall outside the public procurement regime.

In summary, the development agreement required SMDL to prepare project plans, a budget for the infrastructure costs and an outline planning permission. However, the development agreement only granted SDML an option to acquire an interest in the site and undertake redevelopment works.

Faraday Development Limited (FDL) was a member of a joint venture company that had unsuccessfully bid for the opportunity to develop the Council’s site. It challenged the Council’s decision to enter into the development agreement with SMDL on three grounds, two of which related to public procurement:

  • It alleged that the development agreement was a “public works contract” and/or a “public services contract” within the meaning of Directive 2014/24/EU (the “Directive”) and that the Council’s decision not to comply with the Directive was unlawful.
  • In addition, FDL alleged that the Council’s reasons for entering into an agreement outside the public procurement regime were irrational.

Decision

The Judge noted that a contract with a “contracting authority” only falls within the scope of the Directive if (i) its main object corresponds to the definition of one of the three types of public contracts and (ii) the contractor is under an enforceable obligation to carry out that main purpose. The Court rejected the suggestion that public procurement law applies if there is an obligation on the part of the contractor to undertake works or services which are merely ancillary to the main object of the contract as being contrary to established case law. Additionally, the Court found that in the context of a “public works contract”, the object of such a contract must be either the execution of works or a work or both the design and execution of works or a work. Accordingly, an obligation to simply design works will not meet the definition.

The Court also dismissed the second claim describing it as “wholly untenable”. The Court noted that the Council tested market interest in redeveloping the site through a process outside the public procurement regime and that the Council was concerned to stimulate market interest as much as possible. The Court further found that the Council had a rational reason for proceeding outside the scope of the public procurement regime and that the Council did not act in an arbitrary manner.

Comment

This case reaffirms the position that a development agreement whose main object is not public works may fall outside the public procurement regime. This judgement is of particular interest to contracting authorities and developers who are seeking to enter into arrangements for the development of land and whether they would be the subject to the public procurement rules, invariably a consideration that needs to be addressed.