Development Agreements: the recoil Auroux continues

Scotland
Following a recent decision by the High Court, authorities can take additional comfort that the procurement rules will not apply when they are selling land for which the planning permission imposes development obligations. The High Court's decision related to the Co-op's application for judicial review of Birmingham City Council's decision not to observe the procurement regulations when selling its interest in a plot of land to Tesco.

Facts

As part of a strategy for encouraging new retail investment, the Council identified a site it owned which was suitable for redevelopment. 

Tesco and the Co-op both applied for planning permission for the land, and were required as a condition of the s106 agreement (the English equivalent of the s75 agreement) to replace a community centre that was on the land.  The Council commenced a competitive, but unregulated tender process with Tesco and the Co-op for the sale of the land. The Heads of Terms included similar obligations to those in the s106 agreement but also imposed time frames within which the development must be commenced and the relocation finished.  Tesco was appointed preferred bidder.  The Co-op challenged that decision, arguing that the development obligations took the arrangement within the definition of a public works contract which should be procured under the Public Contracts Regulations 2006. 

The Council terminated the first tender process.  On 4 August 2010, it began a new, open, tender process.  The Co-op refused to bid in that tender process.  The decision was taken to sell the land to Tesco, the only bidder.  Shortly after that decision was taken, Tesco was granted a new planning permission for the site.  Under the terms of the s106 agreement associated with the planning permission, Tesco was required to provide the replacement bowling and community centre facilities.  

The Co-op issued proceedings seeking judicial review of the Council's decision to sell the land to Tesco.  The judicial review action was brought partly on the basis that the contract was a public works contract and should have been procured under the Regulations.

Judgment

The judge determined that a key factor of the ECJ's decision in Helmut Muller was the assumption by the contractor of a legally enforceable obligation to perform the works, whether direct or indirect.  While the judge agreed that the land sale had to be looked at as a whole and in connection with any other arrangements between the parties, he concluded that Tesco was not under a legally enforceable obligation to carry out the works:

"It is insufficient if, legally, the contractor has a choice and is entitled not to perform the works…..it is not to the point that, in the future and dependent upon how matters in fact proceed and choices Tesco make, they might at some stage be committed to such an obligation". 

There was therefore no public works contract and the Co-op's proceedings failed.  

Comment

OGC's guidance on development agreements identified three conditions which must be met to conclude that there is a public works contract:
Square there must be a work or works required or specified by a contracting authority;
Square there must be an enforceable obligation (in writing) on a contractor to carry out that work or works; and
Square there must be a pecuniary interest for carrying out the work. 
That guidance also stated that s106 agreements were unlikely to trigger the public procurement regime for a number of reasons, including the absence of a legally enforceable obligation to carry out the works.
 
The court has now provided additional comfort: even when tied in with a land sale, imposing developing obligations under a s75 agreement will not force the authority to carry out a regulated tender process, provided those obligations bite only if the developer freely chooses to commence development.