| SPOTLIGHT |
In the wake of new guidance from the Office of Government Commerce, Michael Fahy looks at the ongoing impact of the Auroux Case on development agreements.
Urban renewal and regeneration schemes are often promoted by local authorities in conjunction with developers and the rights and obligations of each party contained in some form of development agreement.
For the most part it had been assumed that such schemes were not subject to the provisions of the Regulations. However, a decision by the European Court of Justice in a French case of Jean Auroux -and- Others of the Commune of Roanne has thrown into doubt the previous assumption concerning the applicability of the Regulations.
In the Auroux case some council members took the view that an agreement should have been subject to the formal tendering process and despite an argument by the French government that, amongst other things, the agreement was within one of the exceptions to which the EU Directive did not apply being a contract for the purchase of land, the ECJ agreed with the dissenting councillors and confirmed the contract was one to which the tendering process should have been applied.
Practical Implications
The Auroux case has serious practical implications for regeneration projects as, if the Regulations apply, a formal tendering process must be adhered to prior to entering into any contracts for works. The ruling is causing several major schemes to be delayed, reportedly including the Eden Quarter Scheme in Kingston-upon-Thames and Eastbourne Town Centre Redevelopment Scheme.
If the Regulations are not adhered to, the local authority is leaving itself exposed to potentially expensive claims from third parties who may have benefited from the projects in question. It is believed that several existing schemes are now being investigated to ascertain whether the Regulations should have been applied.
The duty is owed by the local authority under the Regulations to an economic operator. The latter is defined as being: a contractor; a supplier; or a services provider. The claim by an economic operator must be brought promptly and in any event within three months of the date on which the grounds for bringing the proceedings first arose. The claim will be for any loss or damage suffered by the economic operator as a result of the breach of the duty.
Office of Government and Commerce guidance
As a result of the ruling in the Auroux Case, which concerned some works between the Council of Roanne and a semi-public company for the construction of leisure facilities and some commercial premises and in particular for car parking and public spaces that were transferred back to the council, guidance was sought from the OGC on when the Regulations would apply to development agreements between local authorities and developers in the UK.
The long-awaited guidance was finally issued in October of this year. Unfortunately, the certainty sought is not entirely provided by the guidance as the guidance itself is stated as not being definitive or comprehensive and may be subject to review depending on feedback from the European Commission. It also stresses that all projects must be looked at on a case-by-case basis.
Notwithstanding the above, the guidance does give some useful pointers as to when the Regulations may apply. These include where works are required or specified by the contracting authority, the obligations to carry out the works are included within a legally enforceable contract and there is some pecuniary interest for carrying out the works – although this is not necessarily a cash payment.
The guidance also suggests that where the points below are satisfied, the Regulations will not apply:
The above applies even if the local authority chooses a particular developer by reference to criteria imposed by the local authority.
Conclusion
For the time being the safest approach for local authorities to adopt is a cautious one and seek legal advice, at the outset, on any significant development schemes on a case-by-case basis.
There is still some considerable doubt as to whether the Regulations apply to the exercise by the local authority of its Compulsory Purchase Order powers; works pursuant to a Section 106 of the Town & Country Planning Act 1990 agreement; and works required in accordance with Section 278 of the Highways Act 1980.
The above will be the subject of further guidance that is currently awaited from the OGC.
Michael Fahy is a principal at Steeles Law
