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A February judgment of the UK High Court has served a salient reminder of the dangers of entering into (or even varying) development schemes which involve public sector land without a thorough consideration of the possible application of EU procurement law.
The case has emphasised again the critical importance for local authorities to consider the potential application of the public procurement rules before entering into new developments or authorising variations to existing ones.
Winchester City Council had, back in 2004, signed off on a major urban development with Henderson Global Investors. The project had not been the subject of a competitive tender, possibly because it pre-dated the well known judgment of the Court of Justice of the EU in Case C-220/05 Jean Auroux v Commune de Roanne in 2009, which highlighted how developments could be caught by the EU rules.
In 2013, Winchester Council authorised certain alterations to the development. These included the authorisation of changes to permit the abandonment of a previous requirement for Henderson to provide 35% affordable housing as part of the development, and to replace a requirement for a bus station and various civic uses with additional retail space, including a new department store, which had not been part of the original scheme.
These changes were opposed in principle by the “Winchester deserves better campaign”, led by local Councillor, Mr Kim Gottlieb. Mr Gottlieb sought a judicial review of the Council’s decision to make the alterations. His challenge was based on the direct award of the alteration works to the same developer, without any competitive procurement process.
In her 11 February 2015 judgment, Mrs Justice Lang, found in favour of Mr Gottlieb. She relied on the 2004 judgment of the CJEU in the earlier Case C-454/06 Pressetext Nachrichtenagentur GmbH v Republic of Austria, which had held that where a regulated contract is changed in a material way, it will need to be the subject of a fresh procurement process.
Here, she found that the Council’s decision to vary the original Development Agreement showed its intention to renegotiate its essential terms and to change the economic balance of the contract in favour of the developer. This essentially created a new contract, distinct from its 2004 predecessor. That new contract triggered the requirement for a competitive tender, and the Council’s decision to proceed without one was quashed.
The Judge’s application of Pressetext is the most striking aspect of this case. She was not prepared to accept that there could only be a proven “material change” if the claimant could show that “there would be someone else who would have been ready, willing and able to bid, who would have wished to have done so if the opportunity had been made clear, but who did not do so because it was not.”
That would not be practical in the current circumstances, as the project had not been the subject of any tender process, making it impossible to identify any actual or potential bidders who had been deterred or disadvantaged. She accepted the claimant’s submissions that, on the balance of probabilities, a realistic hypothetical bidder would have applied, had the scheme been advertised on the new terms. That was sufficient to show materiality.
The judgment is also interesting, insofar as the Judge allowed a judicial review application of a procurement from a party who was not a tenderer. Similar applications have been unsuccessful, notably in the case of Gillian Chandler v London Borough of Camden and the Secretary of State for Children, Schools and Families.
In this case, however, the Judge accepted that Mr Gottlieb had a legitimate interest and standing and also rejected the Council’s argument that he is not entitled to relief from its decision (possibly in the form of requiring an entire re-run of the existing development). However, she has deferred any decision on what form the relief should take until a subsequent judgment.
This will be read with interest when it emerges, not least to see if it results in the first declaration of ineffectiveness of a concluded public contract. The first judgment is a salient reminder to authorities to consider procurement issues, not only at the outset of schemes but also when altering their terms.
In considering who might challenge, they must not only consider disgruntled bidders, but also third parties who feel aggrieved by the process. In the case of local authorities, a challenge may even emerge from their own ranks!
This article was written by Paul Henty.
For more information please contact Paul on +44 (0)20 7427 6506 or email@example.com.