Public sector contracts: what is wrong with procurement?

Posted: 28/11/2018

If you want to work with a public authority in bringing forward development it is wise to comply with procurement requirements. These are embodied principally in the 2014 EU public procurement Directive (transposed by the Public Contracts Regulations for England and Wales). They are not necessarily as onerous as is often thought.

The recent Court of Appeal case of Faraday Development Ltd v West Berkshire Council provides us all with a stark reminder of what happens if you fall foul of the requirements. 

The Faraday case is not particularly ground breaking in its approach of looking at the requirements of the European-based law and how it should be applied to the facts of the case, holistically rather than strictly. It is, however, a good example of where a contract that, on the face of it, was not subject to the procurement requirements could, if looked at in the whole, be subject to those requirements. 

In essence the contact in question did not, at the time it was entered into, require any works that would be caught by the procurement requirements to be carried out. Instead those works came at later period and were subject to the developer choosing whether or not to exercise certain options. The contract, or more accurately the effect of the contract, was held to be caught by the procurement requirements and determined to be ineffective; its award should have been subject to a public procurement process. There is more to the case – such as the dismissal of a badly drafted voluntary ex-ante transparency notice (VEAT) – but how the court interpreted the whole contract is the part of the judgment that seems to have caused most concern.

The case has brought into focus the need to ensure that, however the deal is constructed, it needs to be looked at critically to understand if, taken as a whole, the effect of it is to procure works that should have been subject to the procurement requirements. 

That should not really have been a surprise. 

European legislation and its application is always considered in a holistic manner, ignoring a strict interpretation of the terms for a more pragmatic view of the real effect of any decision. Attempts to circumvent any requirements often fail - Faraday is one more example of that.

Faraday may not represent a change in the law but the application of longstanding (and clear) principles to a set of arrangements which will be very familiar to the real estate sector as a whole and may well result in more of these arrangements being brought forward within the framework of the procurement requirements.

From the private sector perspective there is nothing to fear but for developers who are not familiar with the principles it is important to work with advisers who can play a substantial role in mitigating the cost risk. One of the many benefits that flow from these procurements can be an invaluable transparency, something absent in Faraday, particularly in respect of the VEAT.

From the public sector perspective there can be flexibilities in the design of the procurements and, particularly for schemes of modest scale and complexity, it is essential to have a streamlined simple process. The Directives work best if careful planning has gone into setting objectives and evaluation criteria at the outset (before the procurement is launched) and not departing from them.

Finally, the Faraday case serves as a bleak reminder of the risks in relying on a VEAT notice as a ‘get of jail’ card.

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