On 25 March 2010 the Court of Justice of the European Union (“CJEU”) provided further clarification on the application of EU procurement rules to land development agreements. The CJEU’s decision in case C-451/08 Helmut Müller v Bundesanstalt fur Immobilienaufgaben, establishes that not all land development agreements will fall within the EU procurement rules. A ‘public works contract’ will arise only when the resulting works will be of direct economic benefit to the contracting authority, for example, where the contracting authority is to become the owner of the works or it is to hold a legal right over the use of the work. The mere exercise of regulatory urban-planning powers by a local authority is not sufficient to trigger the procurement rules.

The CJEU also ruled that ‘works concessions’ are not likely to arise where the concessionaire (developer) already owns the land, or will become the owner of the land for an indeterminate period.

The CJEU’s ruling in Helmut Müller confines some of the far-reaching interpretations of the earlier case of Auroux v. Commune de Roanne, and confirms the general position set out in the recent OGC guidance on development agreements published in October 2009. To view our previous Alert on the Auroux decision and the OGC guidance click here.

BACKGROUND

The Helmut Müller case concerned the sale and development of 24 hectares of former Wittekind- Kaserne army barracks land in Wildeshausen, Germany. The Bundesanstalt published its intention to sell the land in the Wildeshausen local authority (“WLA”). The notice of sale stated that the property should not be sold until after WLA local council had approved the development project, and that the authorised use of the land would be agreed with the WLA.

Following the submission of bids and plans for use of the land by two companies, Helmut Müller GmbH and GSSI, the WLA declared its preference for GSSI’s proposals and announced its readiness to begin proceedings to establish an urban development plan on the basis of GSSI’s project. The Bundesanstalt, with the agreement of the WLA, subsequently sold the land to GSSI.

Helmut Müller challenged the sale before the national court, claiming that it should have been carried out in accordance with public procurement law.

The higher regional court in Düsseldorf referred the case to the CJEU for a preliminary ruling concerning the interpretation of the concept of “public works contracts” within the meaning of Directive 2004/18.

THE JUDGMENT  

The first two questions referred by the German court considered whether the concept of ‘public works contracts’ requires that the works be carried out for the authority’s immediate economic benefit or whether it is sufficient that the works merely fulfil a public purpose (such as the development of part of a town). The CJEU held that the concept of ‘public works contracts’ does not require that the works which are the subject of the contract be materially or physically carried out for the contracting authority, provided that they are carried out for that authority’s direct economic benefit. Such economic benefit will exist where the contracting authority is to become the owner of the works, or it is to hold a legal right over the use of the works. ‘Economic benefit’ will also exist in cases where the contracting authority has contributed financially to the realisation of the works, or in the assumption of the risks, or if it derives an economic advantage from the future use or transfer of the works. The mere exercise of regulatory urban-planning powers by a local authority is not sufficient to trigger the procurement rules.

The third and fourth questions referred to the CJEU asked whether the contractor must be under a direct or indirect obligation to carry out the works. The CJEU confirmed that the concept of ‘public works contracts’ requires that the contractor assume a direct or indirect obligation to carry out the works which are the subject of the contract and that that obligation be legally enforceable in accordance with the procedural rules laid down by national law.

The next questions posed by the German court concerned the condition of ‘work corresponding to the requirements specified by the contracting authority’, which forms part of the definition of a ‘public works contract’. This question was brought due to the fact that the WLA did not draw up a list of requirements relating to the work to be carried out but merely embarked on the procedure of drawing up a corresponding building plan. The CJEU held that the ‘requirements specified by the contracting authority’ cannot consist in the mere fact that a public authority examines certain building plans submitted to it or takes a decision in the exercise of its regulatory urban-planning powers. In order for this condition to be satisfied, the contracting authority must take measures to define the type of the work, and have a decisive influence on its design.

The CJEU also ruled that a public works concession may not be awarded for an indefinite period or where the concessionaire is, or will become, the owner of the land. The Court submitted that as long as the owner of the land enjoys the right to exploit the land which he owns in compliance with the applicable statutory rules, it is in principle impossible for a public authority to grant a concession relating to that exploitation.

COMMENTS

To the extent that this judgment confirms that the mere exercise of regulatory urban-planning powers will not trigger the procurement rules, it is a step in the right direction and should be welcomed by local and regional authorities and developers alike. In the UK similar situations often arise in relation to section 106 agreements however, no specific consideration was given to this in the judgment.

The requirement that there must be a direct economic benefit to the contracting authority is another helpful clarification, potentially limiting the application of the procurement rules to certain arrangements. It has not been clarified however, what the position is where the proposed works have not been invited or initiated by the contracting authority (although the Advocate General did address this point in his opinion).

The Court’s submission in relation to works concessions may limit the use of this award procedure to development agreements, which is unfortunate. Given the ambiguity in relation to the use of the negotiated procedure without a notice on the basis of “exclusive rights” where the developer owns the land, contracting authorities may conclude that the safest route in which to award development agreements may be by using competitive dialogue, which is often criticised for being costly and lengthy.