In a judgment published this morning, the European Court of Justice has shed light on a number of points in relation to the application of public procurement rules to development agreements. With many issues left open following both the Roanne judgment and subsequent Office of Government Commerce guidance on development agreements this judgment has gone further than many hoped in providing clarity on a number of previously grey issues.
Key conclusions reached in the judgment are:
- If the involvement of a local authority in a development is limited only to the exercise by that authority of its regulatory planning powers, the public procurement rules will not apply.
- Provided no “immediate economic benefit” is derived by the authority in relation to the development in question, the rules will also not apply.
- However, the following are sufficient for an “immediate economic benefit” to arise:
- The authority is to become owner of the development works; or
- The authority will hold a legal right over the use of the works so
they can be made available to the public; or
- The authority has contributed financially to the realisation of the
development or assumed risks if the development were to fail.
- For the procurement rules to apply, there must be a direct or indirect obligation to carry out works. An “indirect” obligation would appear to capture indirect delivery of the works through a sub-contractor.
- The "specification of requirements" by an authority involves more than the mere examination of building plans or taking a decision in the exercise of planning powers. The authority must have taken measures to define the type of work to be built or, at the very least, had a decisive influence on its design.
So where does the judgment leave us? Are section 106 agreements really subject to the public procurement rules? Provided that the subject matter of the planning obligations can be said to be solely related to the exercise of the authority’s planning powers then probably not. However, much will depend on the link between the subject matter of the agreement and its planning justification, as well as the form of obligation in each case.
As ever though, the judgment does raise further questions including at what point is influence “decisive”? Would a right of veto suffice or is that right inadequate in that the authority would not be involved in steering the design as such?
Overall, today’s judgment provides welcome clarity in relation to a number of difficult issues in relation to the application of procurement rules to development agreements. This should allow developers to proceed with more confidence when negotiating with public bodies. However, the uncertainty that remains surrounding certain points of the judgment means that both parties should remain cautious when drafting the agreements.