OCG Publish New Guidance On Land Development Agreements

The OGC has just published a long awaited commentary on the inter-play between the public procurement rules and land development agreements. This subject has been in the spotlight since the notorious Auroux v Roanne case of 2007, which highlighted that land transfers from public authorities which impose associated specified works obligations on developers are "public works contracts" and therefore subject to mandatory application of the public procurement rules if the relevant value thresholds are crossed. The OGC paper offers some further thoughts in relation to this. It seeks to clarify what are the "specified works obligations" necessary to place a land development agreement within the ambit of the public procurement rules, and in particular what sort of conditions in a land development will fall short of this test and thereby escape the rules.

The relevant law on public works contracts

Article 2(1) of the Public Contracts Regulations 2006 (PCR) defines a public works contract as "a contract in writing for consideration (in cash or in kind): (a) for the carrying out of a work or works on behalf of a contracting authority; or (b) under which a contracting authority engages a person to procure by any means the carrying out for the contracting authority of a work corresponding to particular specified requirements". In its paper the OGC has broken this down further into asking the following questions for the purposes of determining if a development agreement includes a public works contract, namely:

Is there a work or works required or specified by a contracting authority? Is there an enforceable obligation (in writing) on a contractor to carry out that work or works? Is there some pecuniary interest for carrying out this work (not necessarily a cash payment)? If the above elements are all met then it is likely that the development agreement involves a public works contract subject to the procurement rules.

The Roanne case

This European Court of Justice (ECJ) case addressed these issues. It involved a French municipality (Roanne) engaging a third party developer (SEDL) to acquire land, build a leisure complex including a cinema and commercial premises (to be sold on to a third party) and a car park to be transferred back to the municipality together with various other outputs such as access roads and public spaces. The municipality of Roanne was the instigator and author of the project. The ECJ was asked to determine whether the agreement did in fact involve a public works contract subject to the procurement rules. The ECJ found that as the main purpose was to carry out works corresponding to specified requirements, it was a works contract that needed to be advertised and tendered under the OJEU rules. The construction of the leisure centre was to be regarded as corresponding to the requirements of the municipality because taken as a whole the project was intended to reposition and regenerate the local area. This was seen as a warning to local authorities everywhere that if a contract results in the provision of works to (public) order (in excess of the works value threshold of approximately £3.5m), then even if other aims are pursued through the project as well, there is a public works contract subject to the procurement rules which must...