The Court of Appeal has ruled that a development agreement is a public works contract even though it does not commit the developer to undertake public works until it elects to serve an option notice to draw down land.

This case will have important implications for public authorities entering into development agreements that procure public works.  This is particularly the case where contracts provide for multiple stages and options. It will be necessary to determine from the outset whether any stage or option would constitute a public works contract triggering the procurement process.

Lindblom LJ giving the judgment held :

“61. ... the development agreement clearly did provide, at the date it was entered into, for a procurement by the council of the development it was intended to deliver. At that date, no further act of procurement by the council remained to be done, for which a lawful public procurement procedure could later be conducted. The time for that had passed. When it entered into the development agreement, the council had nothing more to do to ensure that a “public works contract” would come into being. It had, in fact, done all that it needed to do to procure. It had committed itself contractually, without any further steps being required of it, to a transaction that will fully satisfy the requirements of a “public works contract”. It had committed itself to procuring the development from St Modwen. The development agreement constitutes a procurement in its result, and a procurement without a lawful procurement procedure under the 2004 Directive and the 2006 regulations. The procurement crystallizes when St Modwen draws down the land. The ground lease entered into by St Modwen will contain an unqualified obligation to carry out works, and a corresponding obligation will also be brought into effect in the development agreement itself. The development agreement made that commitment on the part of the council final and provided also for a reciprocal commitment on the part of St Modwen. It did so without a public procurement process, and without affording any opportunity for such a process to be gone through before the “public works contract” materializes. At that stage it would be too late. Thus a “public works contract” will have come into being without a lawful procurement process. The regulation of the council’s actions in procuring the development will have been frustrated.

 62. By entering into the development agreement, therefore, the council effectively agreed to act unlawfully in the future. In effect, it committed itself to acting in breach of the legislative regime for procurement."

Christopher Stanwell, Alison Walton,  Amanda Brodie and Rory Bennett of DAC Beachcroft acted for Faraday Development Limited. They instructed Nigel Giffin QC, Charlie Banner and Heather Sergeant.