Faraday Development Ltd v West Berkshire Council

Hearing date: 12 June 2018

Introduction

This appeal concerns the application of the law of public procurement to contracts by which local authorities seek to bring about the development of land in their ownership. It raises this question. Did a local authority act in breach of the requirements of Directive 2004/18/EC“on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts” (“the 2004 Directive”) and the Public Contracts Regulations 2006 (“the 2006 regulations”), when, without having followed a procurement process under the 2006 regulations, it entered into a development agreement containing contingent obligations on the part of the developer to carry out development on its own industrial land?

The appellant, Faraday Development Ltd., appeals against the order of Holgate J., dated 26 August 2016, dismissing its claim for judicial review of the decision of the respondent, West Berkshire Council, to enter into a development agreement, on 4 September 2015, for the disposal of land on the London Road Industrial Estate, in Newbury, to the interested party, St Modwen Developments Ltd. The judge also dismissed Faraday's claim under Part 6 of the Public Contracts Regulations 2015 (“the 2015 regulations”). He held that the development agreement did not constitute either a “public works contract” or a “public services contract” under the 2004 Directive and the 2006 regulations. He also concluded that the council had not failed to comply with the requirement in section 123(2) of the Local Government Act 1972 to obtain “best consideration”. Permission to appeal was granted by Sales L.J. on 6 October 2017. In granting permission, he observed that there was “a strong public interest” in this court examining the proper application of the legislative regime for public procurement in “a case where a development agreement is structured around an option for the developer to acquire the land in question (but with other contractual obligations, the fulfilment of which may well create a financial incentive for the developer to exercise that option)”.

The issues in the appeal

There are four grounds of appeal. All four relate to ground 2 of Faraday's challenge at first instance, in which it was asserted that the council acted inconsistently with its obligations under the public procurement legislation because the development agreement constitutes a “public works contract” or a “public service contract” within the meaning of Directive 2014/24/EU “on public procurement and repealing [the 2004 Directive]” (“the 2014 Directive”), which is transposed into domestic law by the 2015 regulations, and therefore the council's acknowledged failure to undertake a process of public procurement under the 2014 Directive and the 2015 regulations was unlawful. In a respondent's notice the council invite us to uphold the judge's decision on additional or alternative grounds. Six main issues emerge:

(1) Is the development agreement a “public works contract”, as defined in the 2004 Directive (the first ground of appeal, and the second and third grounds in the respondent's notice)?

(2) Was it unlawful for the council to enter into the development agreement, because by doing so it committed itself to entering into a “public works contract” without following the procedure for public procurement (the second ground of appeal)?

(3) If the development agreement was not a “public works contract”, was this because the public procurement regime was deliberately and unlawfully avoided (the third ground of appeal)?

(4) If the development agreement was not a “public works contract”, was it, however, a “public services contract” (the fourth ground of appeal)?

(5) Is the claim for a declaration of ineffectiveness precluded by the council's “voluntary transparency notice” (the first ground in the respondent's notice, in part)?

(6) Is any claim seeking relief other than a “declaration of ineffectiveness” time-barred (the first ground in the respondent's notice, in part)?

The first and second issues are closely linked, and can be dealt with together.

“Public works contracts” under the 2004 Directive

The current regime for public procurement is in the 2014 Directive and the 2015 regulations. But the relevant provisions in the legislation in force at the time when the development agreement was entered into were in the 2006 regulations, which transposed the 2004 Directive into domestic law – because the “contract award procedure” began before 26 February 2015 (see paragraph 166 of Holgate J.'s judgment).

As Lord Hope said in Risk Management Partners Ltd. v Brent London Borough Council [2011] 2 A.C. 34, [2011] UKSC 7 (in paragraph 10 of his judgment), “[the] broad object of [the 2004 Directive], and of the Regulations that give effect to it, is to ensure that public bodies award certain contracts above a minimum value only after fair competition, and that the award is made to the person offering the lowest price or making the most economically advantageous offer” (see also, to similar effect, the judgment of Lord Hodge in Edenred (UK Group) Ltd. v H.M. Treasury[2015] P.T.S.R. 1088, [2015] UKSC 45, at paragraph 28).

Recital 2 of the 2004 Directive stated:

“(2) The award of contracts concluded in the Member States on behalf of the State, regional or local authorities and other bodies governed by public law entities, is subject to the respect of the principles of the Treaty … and to the principles deriving therefrom, such as the principle of equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principle of proportionality and the principle of transparency. However, for public contracts above a certain value, it is advisable to draw up provisions of Community coordination of national procedures for the award of such contracts which are based on these principles so as to ensure the effects of them and to guarantee the opening-up of public procurement to competition. These coordinating provisions should therefore be interpreted in accordance with both the aforementioned rules and principles and other rules of the Treaty.”

Article 1(2) of the 2004 Directive contained these definitions:

“(a) ‘Public contracts’ are contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of this Directive.

(b) ‘Public works contracts’ are public contracts having as their object either the execution, or both the design and execution, of works related to one of the activities within the meaning of Annex I or a work, or the realisation, by whatever means, of a work corresponding to the requirements specified by the contracting authority. A ‘work’ means the outcome of building or civil engineering works taken as a whole which is sufficient of itself to fulfil an economic or technical function.

…

(d) ‘Public service contracts’ are public contracts other than public works or supply contracts having as their object the provision of services referred to in Annex II.

A public contract having as its object both products and services within the meaning of Annex II shall be considered to be a ‘public service contract’ if the value of the services in question exceeds that of the products covered by the contract.

A public contract having as its object services within the meaning of Annex II and including activities within the meaning of Annex I that are only incidental to the principal object of the contract shall be considered to be a public service contract.”

Article 28 provided:

“28. In awarding their public contracts, contracting authorities shall apply the national procedures adjusted for the purposes of this Directive.

They shall award these public contracts by applying the open or restricted procedure. In the specific circumstances expressly provided for in Article 29, contracting authorities may award their public contracts by means of the competitive dialogue. In the specific cases and circumstances referred to expressly in Articles 30 and 31, they may apply a negotiated procedure, with or without publication of the contract notice.”

Under the 2006 regulations, in awarding a “public works contract” or a “public services contract”, the contracting authority was bound to treat economic operators “equally and in a non-discriminatory way” (regulation 4(3)(a)). It was also required to act “in a transparent way” (regulation 4(3)(b)). It was obliged, before the submission of tenders, to publish award criteria that bidders could be expected to understand in the same way (regulations 15 to 18), and, once tenders were received, to apply those criteria (regulation 30). The “contract award notice” itself had to be advertised in the Official Journal of the European Union (regulation 31).

Remedies under the 2006 regulations

In Part 9 of the 2006 regulations, “Applications to the court”, regulation 47A provided the duty owed by a contracting authority to economic operators. Regulation 47C provided...