Procurement Law Update

Stephen Pearson, Freeths, Nottingham

Notwithstanding the question marks over the future of our public procurement regime post-Brexit, developments and new cases in this area continue apace-we set out below some of the more interesting ones over the past few months.

R (Wylde) v Waverley 2017

Challenging Public Authorities’ Procurement Issues
This case was an important decision about the limitation on the use of judicial review as a weapon to challenge public authorities’ procurement processes. In this case, a group of local councillors and residents opposed a large scale development in Farnharm Town Centre. They attempted to challenge the variation of the development agreement using judicial review proceedings on the grounds that the variation to the underlying development proposals were not in keeping with the town of Farnham. The court ruled that the claimants did not have “sufficient interest” or ‘standing’ to bring a judicial review claim.

Background
The claim (with some similarities to the Gottlieb v Winchester case of 2 years ago) related to a proposed variation of the original development agreement in favour of the developer. The original development agreement had included a viability condition as a condition precedent, requiring that before the development could proceed, the land value to the local authority had to reach a certain value (£8.76 million) after development. Due to changes in the market, it was realised that unless the condition was varied, the value would not be met and the development would not proceed. Therefore, in order to make this economically viable, the Council sought to reduce the viability condition to a minimum land value of £3.19 million.

The Issue
Did the claimants have “sufficient interest” to pursue a judicial review claim based solely on alleged breach of procurement Regulations?

Standing
The claimants could not bring a claim under the Public Contract Regulations (PCR) as they were not “economic operators” with an interest in securing the contract, which was the subject of their claim. Section 31 (3) of the Senior Courts Act 1981 provides that in order to bring an application for judicial review, a party must have “sufficient interest” in the matter to which the application relates. With procurement, there is a tight focus on the interests of those seeking public contracts.

Decision
The judge had to consider whether the claimants have significant standing to bring a judicial review claim. The judge applied the test in R (Chandler) v Secretary of State (2010) in that a judicial review claim can only be made if there is “sufficient interest in compliance with the public procurement regime in the sense that he is affected in some identifiable way”. The “sufficient interest” test varies in strictness according to the purpose of the legislation. The standing test in procurement issues is strict. Being a council tax payer, local resident or a member of a local authority is insufficient as such persons do not have an interest in the procurement process.  The court held that the claimants had not been able to demonstrate that they had a standing to bring a claim, as the claimants could not establish that they had “sufficient interest” because they had difficulty showing that any competitive tendering exercise for the varied contract would produce a different outcome. Also, they were unable to demonstrate that they would be impacted by the running of a competitive tender process.

Comment
The restrictive approach used in this case, could possibly be good news for local authorities, developers and public sector bodies where procurement projects are at risk of being challenged. However, there remains an argument that Chandler is wrong and the legislative scheme entirely excludes judicial review claims by “non-economic operators”. Judicial review claims may still be maintained by sub-contractors to bidders and trade associations representing a number of potential bidders.

Faraday Development Ltd v West Berkshire District Council (August 2016) Tendered Development Agreements a Public Contract?

Although this case is now over a year old, it is extremely relevant to a number of schemes that we are advising upon and worthy of reviewing – particularly as it is understood to be the subject of an appeal.

Faraday was part of a tender consortium who were unsuccessful in a tender process for appointment by the Council for the regeneration of an Industrial Estate in Newbury. The Council awarded the development agreement to another tenderer, St Modwen Developments Ltd. Faraday had a mix of leasehold interests and options in the estate and challenged the Council on two grounds for their decision. Firstly, they challenged that the Council failed to obtain “best consideration” for the land, which was contrary to Section 123 of the Local Government Act 1972. Secondly, it claimed that the contractual agreement was subject to public procurement legislation and the Council’s failure to run a tender process under the PCR was unlawful.  These grounds were rejected by the High Court on the basis that the development agreement was a contract to facilitate regeneration by the carrying out of works of redevelopment and to maximise the Council’s financial receipts from the site. The provision of services under the agreement and land assembly did not represent a main purpose in themselves, but simply facilitated the Council’s regeneration and financial objectives. Crucially, applying the Helmut Müller case of 2010, the Court held that there needed to be an enforceable obligation to design and execute works for a “Public Works Contract” as defined by PCR to exist. That was not the case here. The decision made by the Court reinforces the view that the scope of public procurement rules will not extend to development agreements provided that they are structured so that they are not classed as public contracts and/or do not include an enforceable obligation on the developer to carry out the works.  However, this decision is now under appeal.

Technology and Construction Court (TCC) Guidance Note on Procedures for Public Procurement Cases

What do Local Authorities need know about the Guidance Note?
The TCC has produced a new guidance note on public procurement cases which aims to encourage parties to settle disputes without having to issue proceedings by encouraging early settlement and reduce legal costs. It details how to commence proceedings. Authorities are also encouraged to respond promptly and openly to correspondence, disclose key material to claimants at a very early stage when relevant to the complaint and when issuing claims in both the TCC and Administrative Court, both cases should be heard together which should help with cost budgeting. The Guidance is not binding but judges are expected to take account of it when considering case management and costs. It is intended to encourage transparency and to assist with improvement and efficiency in litigation and reduce the time and cost associated with hearing cases in the TCC.

Stephen Pearson
Partner
stephen.pearson@freeths.co.uk
+44(0)845 274 6900

Nathan Holden
Partner
nathan.holden@freeths.co.uk
+44(0)845 077 9646