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AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

September 2010.

At the end of my last piece I promised to look at developer selection and the impact of Muller itself.

To quote W S Gilbert in “The Mikado” the “…stern decree…” of Auroux “…caused great dismay throughout the land…”  This was exacerbated when the European Commission commenced proceedings against the British Government (subsequently dropped) complaining that the British were not playing by the European rules. A helpful response came from OGC which published preliminary guidance, last October, in its Procurement Policy Note on Development Agreements that:-

"Based on its understanding of current relevant case-law and the Commission's decisions, OGC suggests that a “development agreement" between a public body and a developer may be less likely to comprise a public works or works concession contract, if it meets some of the following characteristics:

i) The proposed development (or significant part) is to be undertaken at the initiative and autonomous intention of the developer. (This may be particularly likely if the developer already owns or has control of land to be developed); The development agreement is ancillary or incidental to a transfer or lease of land or property from the authority to the developer, and is intended to protect the interests of a contracting authority which is the lessor or otherwise retains an interest in the land or property;
ii) The development agreement is based on proposals put forward by the developer, rather than requirements specified by the contracting authority, albeit that these proposals may be sought, and the “winner? chosen by the authority;
iii) There is no pecuniary interest passing form the contracting authority to the developer as consideration for undertaking the development, either through direct payment, or indirectly, for example, by the assumption of obligations such as contributions towards project finance or guarantees against possible losses by the developer;
iv) The development agreement does not include specific contractually enforceable obligations on the developer to realise a work or works, (even if that work or works is recognised as being the general intent of the parties to the agreement).?

   While this text was not followed, precisely, by the Court, it would seem that the thrust of this guidance is, taken with the judgment, supportive of the view that entry by a local planning authority into an agreement under s106 of the Town and Country Planning Act 1990 which allows a local planning authority entry into a legally-binding agreement or planning obligation with a landowner in association with the granting of planning permission.  The scope of such agreements is laid out in the government’s Circular 05/2005. A council’s approach to securing benefits through the S106 process should be grounded in evidence-based policy.

The Court has made clear that a public works contract will arise from a development-type agreement only when the resulting works will be of direct economic benefit to the authority, such as where the authority will acquire ownership or use of the works or contributes at least some of the cost. The Advocate General in the case (whose remarks, generally, will repay careful study) went even further by suggesting that the works must have been the result of an initiative taken by the authority in question, but the Court does not specifically mention that as a factor.

The Court also gave a useful steer on the circumstances when the works will be regarded as corresponding to requirements specified by the authority. However, the court's terminology remains quite vague on this point: terms such as "defining the type of work" and having "a decisive influence on its design" leave plenty of scope for differing interpretations. What is made clear is that the mere exercise of planning powers by a local authority is not, of itself, sufficient to trigger the procurement rules.

The decision in Muller represents a welcome clarification and narrowing of the definition of a public works contact and makes clear that not all land development agreements with public authorities will fall within the EU procurement rules.  Sales of land, of themselves, will not fall within the rules provided that the authority can show that it has taken steps to secure the best available price.

The principal questions to be addressed, therefore, seem to be:-

·      Will the works to be carried out be for the authority's economic benefit?
·      Will the contractor be under a legal obligation to carry out the works?
·      Will the authority have taken measures to define the type of the work or, at the very least, have had a decisive influence on its design?.

Although there is certain to be more litigation, and each case will have to be considered on its facts, it is submitted that consideration of these questions before executing documents may save a deal of grief.

Peter Scrafton

©J.P. Scrafton, 2010

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