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Development deals and procurement – the saga continues

Tuesday January 29th, 2013

Just when procurement professionals thought that the line of case law on development deals and public works issues had reached its peak, a recent case highlights a novel approach and argument. The case of AG Quidnet Hounslow LLP v Mayor and Burgesses of the London Borough of Hounslow is the latest instalment of a narrative which at times has contradicted the firmly held assumptions of public procurement specialists.

David Hansom

David Hansom

The case centred on an agreement between London Borough of Hounslow and the investment company L&G over land owned by the Council, and in particular an agreement to ‘lock out’ any negotiations between the Council and rivals to L&G over the land.
The history in this area is involved and complex. Before the Auroux case in 2007, a long-held belief was that development contracts were not subject to the Public Contracts Regulations 2006 (‘the Regulations’) since the decision in R v ex parte O’Malley.
However, the decision in Auroux effectively reversed this position, ruling that in some circumstances development contracts could be subject to the Regulations. The later case of Helmut Mueller clarified the issue by stating that a development contract would be subject to the Regulations if the agreement satisfied two tests, namely that the developer had a legal obligation to carry out the works and that the local authority benefited financially.
Interestingly, whether or not the agreement between Hounslow Council and L&G was subject to the Regulations was not the question to be decided in this case. Instead, Quidnet, a rival of L&G, claimed that the agreement broke European law more broadly by preventing other companies from competing for the contract to develop the land. This was a novel approach to challenging a development agreement. If successful, the case would have provided an accessible new method of challenging development contracts and would once more have reversed practitioners’ commonly held position.
In dismissing the claim, the Court ruled that there were three main reasons why the agreement did not amount to a breach of European law. Firstly, there was nothing more than an agreement to agree between the parties, with no legal obligations placed upon L&G. This meant that there were no ‘services’ to be performed and therefore Article 56 of the Treaty on the Functioning of the European Union (TFEU) on which Quidnet had been relying could not apply.
Secondly, the agreement placed no ‘restriction’ upon L&G. Mr Justice Coulson commented that this could have been engaged had Hounslow insisted upon only local companies being awarded contracts; however, this was not the case. Finally, the agreement did not breach European law because all of the elements to the contract, such as the parties to the agreement, the land and the aggrieved company, were all based in the same country.
The case seems to offer no additional way in which a development arrangement of this nature may be challenged. However, as the ongoing difficult bidder (and development) market continues, we can expect to see more and more types of innovative claim from bidders with nothing to lose. Contracting authorities need to be on their guard and ensure that all off-market deals in development are as defensible as possible.

 

David Hansom
Online: www.vwv.co.uk
Twiter: @vwvlawfirm
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