Development Agreements and the EU procurement rules Faraday Development Limited v West Berkshire District Council

Faraday Development Limited was part of a consortium which was unsuccessful in a non-EU tender process for appointment by the Council of a development partner for the regeneration of the London Road Industrial Estate in Newbury. Faraday challenged the decision by West Berkshire District Council to award the development agreement to another tenderer, St Modwen Developments Limited (SMDL).

The challenge was based on three grounds, all of which were rejected by the Court. The first ground concerned the Council’s duty relating to disposal of land under s.123 Local Government Act 1972. The second and third grounds related to the Council’s failure to use the EU procurement rules in the process to appoint its development partner. Faraday argued that the development agreement was a public contract which should have been awarded using an EU compliant procurement process. It also argued that the Council’s decision not to use the EU procurement rules was irrational.

The Court asked itself what the main purpose of the contract was, and confirmed that the main purpose of a transaction must be determined by an objective assessment of the entire transaction and in the light of essential obligations in the agreement. In this case, the main purpose was the redevelopment and regeneration of the London Road Industrial Estate and services provided by SMDL as part of the arrangement were only incidental to that main purpose.

The Court applied the requirements set out by the European Court of Justice (“ECJ), in the Helmut Müller case[1], in order to determine whether the development agreement should be classified as a public contract for EU procurement purposes.  One of the requirements for a development deal to be classified as a public contract is that the contractor must be “directly or indirectly obliged to provide the works”.  The Court undertook a detailed examination of the terms of the development agreement and analysed the practical impact of those provisions. The Court concluded that the development agreement did not create an enforceable obligation on SMDL to carry out the redevelopment and so it was not a public contract for the purposes of the EU procurement rules.

This case does not mean that all development agreements are automatically excluded from the EU procurement rules. It does provide a useful steer on the types of situation and the structure of deals which are likely to fall outside those rules.

[1] C- 451/08 Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben [2010] ECR I-2673