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Developers beware: A contract for the sale of land by a public body may also be a public works contract.

The recent case of Faraday Development Ltd. v West Berkshire Council 2018 concerned a contract for the sale of land to be sold to a selected developer by West Berkshire via a competitive process.  The focus of the competition was to secure ‘best consideration’ for the land in order to comply with s.123 of the Local Government Act 1972.  The Council had however considered the possible application of the Public Contract Regulations 2015 (PCRs) which require public bodies to follow a prescribed procurement process when awarding a contract, where the value of any goods services or works to be carried out under the contract exceed the relevant threshold value.  The Council concluded that the PCR’s did not apply, but also published a voluntary transparency notice (VEAT).

The contract was structured broadly in the following manner:

The award of the contract was the subject of a challenge by an unsuccessful bidder, on grounds that the Council hadn’t complied with its duties under the PCRs. 

While ordinary sales of development sites by public bodies to developers can be exempt from the PCRs, where there is imposed in the contract an obligation to carry out development works as part of the contract terms (whether immediately or at some contingent future point as part of the conditions) the Court of Appeal ruled that that the contract must be considered in its entirety in order assess whether the PCRs apply. In this case, the court decided that the PCRs did apply, and hadn’t been followed, and ordered that the contract award be declared ineffective.

Comment

Why did the court come to this conclusion?

1.        The court acknowledged that the agreement was not a public works contract at the time when it was entered into, because it contained no immediately enforceable obligations to carry out works, and the contingent obligations lay within the developer’s control.

2.        The contract was not a public services contract, even though it included immediate obligations to carry out services, because the main object of the agreement was the carrying out of works.

3.        The Council had not deliberately set out to enter into an artificial avoidance arrangement, but nevertheless the award of the contract was still unlawful. The Court considered that the arrangements must be taken as a whole, and the terms involved the Council in committing itself to the procurement of works from the chosen developer in the future. If the developer did draw down the land, a public works contract would come into being, and by then it would then be too late to carry out a compliant procurement process.

4.        The development agreement was not saved by the Council’s VEAT notice, which did not meet the required standards. The VEAT notice referred to a land transaction, but did not adequately publicise the nature of the transaction since it failed to include sufficient details of the binding obligations and did not mention the detailed provisions for the design and execution of a large development.

This article is for guidance and does not constitute specific legal advice. For further information or advice please contact realestate@prettys.co.uk or commprop@prettys.co.uk.

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