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Public sector land development agreements and VEAT notices: the Faraday Court of Appeal decision

22 November 2018
DWF
This article explores the significance of a recent case, focusing on when a contract will likely comprise a "public works contract" and the use of VEAT notices to preclude procurement challenges.
 

The Court of Appeal (CoA) decision in Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532 has significant implications for public bodies entering into land development agreements and relying upon Voluntary Ex Ante Transparency notices (VEAT).

Specifically, the decision provides important guidance on when contracts containing obligations to carry out works will comprise "public works contracts" subject to public procurement law. In this case, a development agreement contained options, post-execution, for a developer to draw down land and if the developer exercised an option, it was under legally-enforceable obligations to develop the land in accordance with the agreement. 

This article explores the significance of the case, focusing on when a contract will likely comprise a "public works contract" and the use of VEAT notices to preclude procurement challenges.

Significance

  • The CoA confirmed that the development agreement should be viewed as a whole and so if a contract (such as a development agreement or agreement for lease) contains obligations to carry out works in the future, or these works are subject to certain conditions, the contract will almost certainly comprise a "public works contract", which is subject to public procurement law, as if the public body has committed itself to procurement of works. 
  • The CoA has consequently confirmed that attempts to avoid the application of public procurement law will fail if the reality of a transaction is that a public body is bringing about works, regardless of the manner in which it seeks to facilitate these works.
  • The case also importantly clarifies that a VEAT notice is only an effective method of reducing the risk of a procurement challenge if the VEAT notice contains a full description of the arrangement in question; and does not omit key details of the arrangement. Taken together with the Fastweb decision it means, therefore, that if a VEAT notice does not contain a full description of a transaction and does not justify the decision to award the contract without prior advertisement then it will be unlikely to succeed in precluding a procurement challenge.
  • If a public body is bringing about a development with a value over £4.55 million (the current threshold for public procurement of works contracts) through a transaction, it should either procure in accordance with public procurement law or use an existing pre-procured framework to select a delivery partner.
  • Permission to appeal to the Supreme Court was refused so the law on this area is presently settled.
  • The decision does not change the status quo that genuine land transactions do not have to be formally procured. Therefore, public bodies may still engage directly with the private sector where a purchaser of land develops land speculatively and is under no legally-enforceable obligation to carry out works for a public body and the influence of a public body extends only to exercising statutory planning powers or specifying desirable outcomes of the transaction.

Background

West Berkshire District Council (WBDC) entered into a development agreement with St Modwen Developments Limited (SMDL) in relation to the regeneration of industrial land in Newbury. Faraday Development Limited (Faraday) was the unsuccessful bidder in the non-EU tender process and challenged WBDC's decision to award to SMDL. 

In the first instance, the High Court rejected Faraday's challenge and concluded that the development agreement was not a "public works contract" requiring compliance with public procurement law because SMDL was under no enforceable obligation to carry out works when the development agreement was entered into (as this obligation only arose if SMDL exercised an option to draw down a parcel of land); and effectively, SMDL could "walk away" from the arrangement without being obliged to carry out works.

CoA decision

The CoA agreed that the development agreement was not a "public works contract" at the time it was entered into because it did not contain any immediate enforceable obligations to carry out works. However, a "public works contract" would come into existence in the future if SMDL proceeded to draw down land but WBDC would be unable to carry out the required procurement at this future point. This was held to be unlawful from both a public procurement and public law perspective, as WBDC was effectively agreeing to act unlawfully in the future.

The CoA held that there was no evidence that WBDC had acted in bad faith at any stage of the process in deliberately attempting to circumvent public procurement law; or that the agreement had an unlawful purpose. However, this did not affect the CoA's decision in the case.

The VEAT notice issued by WBDC was held to be misleading as it failed to:

  • contain a full description of the object of the contract;
  • justify WBDC's decision to award the contract without prior advertisement; and
  • detail the provisions regarding the works to be carried out if SMDL exercised options to draw down land. 

The CoA made the first declaration of ineffectiveness (ie. rescinding the contract) in a public procurement case since the remedy was introduced in 2009.

If you think that a project you are procuring or on which you have largely reached completion is now at risk, you should contact a member of  our national Public Sector Commercial team to discuss any changes or mitigation measures that could be put in place to de-risk the delivery. 

Further Reading

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