Land-based Agreements and the Procurement Bill

Local Government lawyers working on regeneration projects will be reviewing the Procurement Bill to see what, if any, impact it will have on their pipeline projects. The Green Paper: Transforming Public Procurement did not ask consultees for their views on the procurement law obligations relating to land based agreements. Within our Lawyers in Local Government (LLG) consultation response to the Green Paper we noted this oversight, articulating our view that:

“Similarly to how Regulation 72 codified the Pressetext judgment on modifications (during the last procurement reform), we consider there is a similar opportunity to codify the rules here. This would provide increased certainty which would be welcomed by local authorities and third party contractors alike.”

This article looks at the current law and what impact the Bill might have and concludes that it misses the opportunity to create greater flexibility and certainty in this area.  

The key question for any local authority considering a land-based agreement is whether it amounts to a works or services contract which engages the public procurement regime, or, alternatively whether it is a disposal of land which is exempt from the procurement rules.

To demonstrate the range of land-based agreements, it is helpful to consider some examples. At one end of the scale, if a local authority wants to sell its land and it is not interested in what happens on the site, this is a straightforward land disposal and it is clear that the public procurement regime is not engaged. At the other end of the scale, a detailed contract setting out what works must be carried out on the site including detailed designs and specifying the building materials which must be used is very likely to be a works contract regardless of whether the land is sold as part of the overall deal.

In the middle of these two extremes, local government has had to carefully navigate the land exemption under the European public procurement regime.  The Court of Appeal case of Faraday[1] confirmed that, to amount to a works contract - not a land deal, works had to be the main object of the contract and there had to be a positive and enforceable obligation to carry out those works.

This legal test is relatively straightforward to articulate but the following hypothetical scenario indicates why greater flexibility would benefit local government.  Council A owns a parcel of land but wants to secure the redevelopment of a wider site. In theory, it could undertake land assembly by purchasing the other land (with or without using its Compulsory Purchase powers) but one of the neighbouring landowners is a developer with deep pockets who will strongly resist this. Without the rest of the site, Council A is unable to carry out a procurement as the other landowner would be the only economic operator able to take the development forward.

Council A must therefore rely on the land exemption to ensure that the public procurement regime does not apply. It wants to make sure that the developer does not bank the land without developing it, so it structures the disposal so that the land is not sold until planning permission, funding and a building contract are in place. This ensures, as far as possible, that the developer is committed to the development.  However, it falls short of legal certainty that the promised works will happen.

This is just one example; if consulted, local authorities may have put forward others. The question of whether greater flexibility could be achieved in compliance with the UK’s international trade agreements on public procurement was ultimately one for the Government and its advisors, but it should have been given serious consideration.

The other problem with the current regime is that there remains uncertainty in relation to S106 Agreements. In the Midlands Co-op case[2], the S106 agreement required Tesco to provide “replacement community facilities” if it chose to implement the planning permission it had obtained. This was not held to be a public works contract. The Court in Faraday made a distinction between that contingent liability and the one in Faraday (where the developer became obligated to carry out works when it drew down a parcel of land), but the basis for doing so is not completely clear. It would be relatively straightforward to amend the Bill to carve S106 agreements out of the definition of a “works contract”.

Many hoped that the Government would take the opportunity to codify the existing caselaw from the Helmut Muller[3] and Faraday cases. They have not done so and whilst the Cabinet Office have indicated that their intention was not to change the law, as with most areas, the new definitions (in particular, there is a new definition of a “work contract”) and drafting will mean that it is not clear whether existing caselaw will prevail. Unlike other aspects of the Bill there is no indication that secondary legislation will bring additional clarity and it seems likely that local government will not have certainty until there has been litigation in the courts.

The existing cases of Faraday and Helmut Muller are fact specific, purposive interpretations of the 2004 EU Directive, based on the application of EU Treaty principles. A UK court will have plenty of scope to depart from previous judgements made under the European Regime.

LLG has met with the Local Government Association to discuss some issues around the Bill, some of which they have fed back to the Cabinet Office. As the Bill progresses, we will continue to work with all relevant stakeholders with a view to clarifying and improving the new procurement law regime.

Alice Rowland is Head of Commercial Law at Brighton & Hove City Council, and Deputy National Lead for Procurement Law within Lawyers in Local Government

[1] Faraday Development Ltd v West Berkshire Council [2018]EWCA Civ 2532

[2] R (Midlands Co-Operative Society) v Birmingham City Council [2012] EWHC 620 (Admin)

[3] C-451/08 - Helmut Müller ECLI:EU:C:2010:168