The case of Jean Auroux and others v Commune of Roanne caused consternation when the European Court of Justice held that development agreements between public bodies and developers may need to be procured in accordance with the public procurement regulations.
Our alert of November 2010 explained how there has been a retreat from the wide-ranging position taken in the Roanne case. However, public bodies are still left considering - albeit with the benefit of increased guidance - whether proposed development agreements will constitute a public works or a public works concession contract.
Commentary has tended to focus on whether the procurement rules apply with an assumption that, if they do, public bodies will be required to undertake one of the procedures identified in the regulations (for example, a competitive dialogue or restricted procedure). These can be cost and time intensive processes for all parties.
However, if the proposed development agreement is properly categorised as a public works concession contract, the public body is not obliged to use any of the procedures identified in the regulations. The public body may, instead, adopt its own procedure provided that:
- it publishes the requisite notice in the Official Journal, and
- the process complies with the general principles of EU law such as equality of treatment, transparency and proportionality.
In short, a public body seeking a developer partner might consider its pre-Roanne selection methods to be perfectly appropriate and, of course, far more palatable to prospective bidders.
A public works concession contract is defined in the regulations as 'a public works contract under which the consideration given by the contracting authority consists of or includes the grant of a right to exploit the work or works to be carried out under the contract'. The European Commission's guidance goes on to explain that this sort of arrangement implies that the risks and responsibilities relating to the project will be borne, for the most part, by the developer.
Our view is that a traditional development agreement may very well fall into this definition. For example, a developer who undertakes to carry out a mixed-use development is likely to bear the risk of managing the works, securing finance and letting the finished scheme. In contrast, a public works contract leaves the contracting authority with the responsibility for financing the works, paying the contractor and finding a continuing use for the end product.
The Commission supports this view. Last year, it took infraction proceedings against the UK Government in relation to a residential development agreement between the City of York Council and the Joseph Rowntree Trust on the basis that the agreement was a works concession contract and so should have been procured in accordance with the regulations.
So, is this a 'get out of jail free' card in the game of EU procurement? Well, no, not quite.
The regulations provide that the successful concessionaire must comply with certain requirements when letting sub-contracts for any of the works (in contrast to services) which are to be carried out under the concession contract. This requirement applies unless the works are excluded from the application of the regulations because one of the general exclusions applies or because the value of the proposed works is below the relevant threshold, currently £3,927,260. Apart from situations where the proposed sub-contractor is a 'related party' (for example, where the sub-contractor is a group company of the parent company concessionaire), the proposed contract must be advertised in the Official Journal and then notified by the publication of an award notice. There is no prescribed process for the selection of a sub-contractor but, as with the procedure adopted for the award of the concession contract, the procedure should comply with the overarching principles of fairness and equality.
Authorities are already beginning to use this method for residential development schemes where housebuilders rarely sub-contract works for sums above the threshold.
While the sub-contracting restrictions are an extra hurdle for developers to take into account, this may be considered to be a small price to pay for a return to the closest thing we have to life before Roanne.