A recent High Court ruling has clarified the extent of a local authority's obligations to obtain best consideration and to comply with public procurement regulations when it enters into a development agreement with a developer for the regeneration of land. The case of R on the application of Faraday Development Ltd v West Berkshire Council and St Modwen Developments Limited concerned a development agreement entered into between West Berkshire Council and St Modwen to regenerate an area of industrial land in Newbury that was owned mostly by the Council. St Modwen was chosen as the development partner pursuant to a competitive tender but not one that was conducted under the Public Contracts Regulations 2015.

An unsuccessful bidder in the tender process, Faraday Development Ltd, brought a challenge against the Council by way of judicial review. It alleged that the Council had failed in its obligations, first, to obtain best consideration for the disposal of its land under section 123 of the Local Government Act 1972 (LGA) and, second, to comply with the Public Contracts Regulations 2015 (PCR). In a judgment laid down on 26 August 2016, the High Court found in favour of the Council and dismissed both aspects of Faraday's claim.

The case provides some reassurance to local authorities and their development partners, with the court taking a pragmatic, flexible approach towards the authority's obligation to secure best value when disposing of land intended for redevelopment.

Best consideration

Faraday claimed that the Council had failed to obtain best consideration by failing to probe the tenderer's financial estimates in more detail and by placing too much emphasis on deliverability and employment generation. The Court dismissed these arguments, finding that the Council's twin objectives of securing increased employment and improving the revenue stream from the site were entirely compatible with its duty to obtain best consideration under the LGA. The Council's overall aim was the maximisation of the receipts that it would receive from its landholding in a long-neglected site which needed to be redeveloped. Furthermore, the Council had received proper professional advice (in particular from the firm Strutt & Parker) throughout on how to protect and maximise its income from the site.

The Court added that, given the future uncertainties of the project, the Council could not be criticised for failing to seek further information on the financial estimates of the bidders. The Council had been entitled to focus on the experience and expertise of the bidding developers and the deliverability of their plans. There was nothing irrational or unlawful in this approach.

Alleged non-compliance with the procurement regulations

Faraday also argued that the development agreement was a "public works contract" or "public services contract" within the meaning of the PCR and that the Council had therefore breached its obligation to hold a competitive tendering procedure which complied with those Regulations. The Court disagreed. It held that the development agreement was a contract to facilitate regeneration and to maximise the Council's financial receipts from the site; the main purpose of the contract was not the provision of works or services.

The Court also recalled that case law has established that a public works contract can arise only if the authority imposes on the developer an enforceable obligation to carry out the redevelopment works. Here, St Modwens was under no such obligation and was free to "walk away" from the site if it so chose.

Faraday further claimed that the Council had acted unlawfully and irrationally by agreeing to sell the land for redevelopment purposes without a legally enforceable obligation on the purchaser to carry out that development, solely in order to avoid the onerous provisions of the PCR. The Court dismissed this argument too, finding that it had been rational for the Council to rely on advice that the competition would receive a more positive response from the market if it were conducted outside the PCR 2015 and also to reply upon a commercial assurance that the redevelopment would be completed over time in accordance with the development agreement. This was entirely a matter for the Council, in which the court would not interfere.

Overall, therefore, the case provides welcome reassurance to local authorities and their development partners as they seek to navigate the potential pitfalls of the rules on best value and public procurement. The court took a pragmatic, flexible approach towards the authority's obligation to secure best value when disposing of land intended for redevelopment. It was also content to allow the Council deliberately to draft the development agreement in way that took it outside the procurement regulations, since the authority had a rational basis for proceeding in that manner.