Q: Can the sale or lease of public land by a developer be caught by the procurement rules?

A: The acquisition or disposal of land, existing buildings or rights over land is exempt from the Public Contracts Regulations 2006.  A simple acquisition or disposal of land or any estate, interest, easement, servitude or right in or over land is not caught under the rules.  The authority has in some way to be purchasing works, goods or services for the rules to apply.

When structured correctly, the exemption can apply where public land is sold to a developer, with the intention that one or both parties will undertake a particular work or works in accordance with the authority's needs. This is so even if the authority has a right to reacquire the land if the works are not ultimately undertaken. The exemption cannot, however, be abused.  For example, if a lease agreement is entered into, placing the provider under an obligation to carry out specified works, this will not defeat the application of the rules. It is no defence for land to be temporarily transferred to the private developer before works were completed and then transferred back to the authority once they were built.

Q: When is a development agreement caught by the Public Procurement rules?

A: Development agreements most commonly get caught by the rules when a public authority enters into an agreement (above a certain value) which falls within the rules' definition of a "public works contract", i.e. "a written contract for consideration for the carrying out of a work or works for a contracting authority of a work corresponding to specified requirements". 

There have been a number of cases which have considered development type arrangements. Prior to the Helmut Müller case (discussed below), the leading case was Jean Auroux and Others v Commune de Roanne (Case C-220/05, 18 January 2007). The case involved an urban re-development, which granted the developer the right to develop a number of facilities such as a cinema and leisure centre. Two particular elements of the scheme led the European Court of Justice ("ECJ") to conclude this was caught by the rules:

• The agreement between the contracting authority and the developer contained binding requirements for the construction of a leisure centre and multiplex cinema.  There was also a requirement for the construction of a car park and access roads, which the authority would purchase on their completion. This was enough to show there were public works being constructed to the specification of the authority.
• The Commune had provided financial consideration by agreeing to pay for any land which was not sold and by making a forward purchase of the car park.

Development agreements were re-visited in Helmut Müller GmbH v. Bundesanstalt für Immobilienaufgaben (Case C 451/08, 25 March 2010). This gave a helpful judgment, with a more generous and arguably more commercial interpretation, in elaborating upon when the rules apply.

The case arose from a town Council's sale of a site previously used as military barracks, conducted by auction between competing developers. The Council chose GSSI as its preferred bidder, on development grounds, and announced its intention to form an urban plan based upon GSSI's proposal.  That decision was challenged by another bidder, Helmut Müller, who argued that the procurement rules should have been followed.  The national court dealing with the case referred several questions of law to the European Court of Justice, which found that the rules did not apply, as the arrangements lacked several of the components necessary to have a works contract.

The ECJ's judgment indicates the rules will only apply when:

• the works carried out confer an "immediate economic benefit" on the contracting authority. 

The works deliverables must either be owned by the authority, available for use by the authority (or, at authority's direction, opened to the public) or the authority must derive an economic benefit from their use or future transfer.  The Helmut Müller case showed that there will not be a sufficient economic interest, where the works simply fulfil an objective in the public interest, such as the development of part of an urban area. 

It is important not to be misled by the Court's use of the word "immediate". The judgment indicates that where the authority takes a commercial interest in the final outcome of the scheme (for example, by taking a share of the final profits on transfer of land to third parties), this will satisfy the "immediate economic benefit" requirements. Frequently, contracting authorities will insist upon taking a share of final profits though an "overage" mechanism.  Depending on how this is structured, this could run into difficulty.  It may be better for the parties to agree, for example, that where land is being sold, a higher price be paid to the authority in the first instance, in order to remain within the exemption for "land agreements" (discussed above).

• the development agreement contains legally binding obligations on the developer to carry out the works in question. 

A "public works contract" must involve a supplier which "carries out, or [arranges to have] carried out, the works which form the subject of that contract." This means that the supplier must assume "direct" or "indirect" obligations to carry out the contract works. If a development agreement is entered into which merely permits (rather than requires) the supplier to carry out certain works, this will not normally trigger the rules.  

• there is a work which corresponds to "requirements specified by the contracting authority". 

This is not satisfied if the authority approves work to be built, where the type of work has been specified by the builder or developer.  In Helmut Müller, the Court said it was also irrelevant that those plans were later to be approved by the contracting authority in the exercise of its urban-planning powers. The Court said that, at the very least, the authority must seek to exercise a decisive influence on the design of the works.

This indicates, for example, a broad requirement for a site to be developed in accordance with a certain type of 'land use' and would not correspond to a requirement of the contracting authority.

It also gives scope for the parties to design the scheme so as to remain unregulated. For example, if works are built on land of the developer to its own specifications and then offered to the contracting authority, there is no reason why the rules should apply. In that scenario, the authority has not commissioned anything and merely bought land because of a facility which is already in existence at the site.

Q: Are Section 106 Agreements caught by the procurement rules?

A: Section 106 Agreements are agreements between planning authorities and builders which contain obligations or address matters that are necessary to make a development acceptable in planning terms.

Whether or not a S106 Agreement is caught depends on the nature of the agreement itself. Difficult issues may arise from planning obligations which require the developer to undertake work to a public highway. Care must be taken to ensure the rules do not apply. 

Q: Are Development Agreements in which a local authority agree to exercise its Compulsory Purchase powers caught by the procurement rules?

A: Whether or not such agreements are caught by the rules will depend upon their purpose and the way they are structured.  In practice, Compulsory Purchase Orders (CPOs) are frequently made in conjunction with a development proposal. Where the CPO is made as part of a proposal to realise a facility which will be owned or used by the authority or to generate funds for it, then the CPO may be seen as part of a regulated activity.

Likewise, if CPOs are used to transfer land to a contractor as part of a works project, the transfer of that land would also be part of the contractor's consideration for carrying out those works and the application of the rules would be triggered.

On the other hand, where there is no binding agreement, the purchase of private land by the authority (whether or not by CPO), should fall into the exemption for land sale and purchase agreements, described more fully above. 

Q: What is the position regarding mixed land ownership?

A: Occasionally, a development will involve some public and some private land. Part of a development may be for the use of a public authority while part will be dedicated for private facilities or buildings.

In those circumstances, caution must be exercised. As shown by the Auroux case, the fact that part of the development will end up in private hands will not, of itself, mean that the scheme as a whole falls outside the rules. If part of the development involves public works, it may be wise to sever these legally from the rest of the development by the use of separate agreements.