Arrested Development Court of Appeal issues first declaration of ineffectiveness under the English procurement regime

In overturning the High Court decision, the Court of Appeal accepted that the agreement could be interpreted in the light of the case law as falling outside the definition of a public works contract; though "plainly directed to the object of that agreement", the obligations under the agreement to carry out works were "for the moment" contingent obligations and as such the agreement was "not yet a public works contract".

However, when the Council entered into the agreement with St Modwen, "no further act of procurement by the council remained to be done". By entering into the agreement, operating outside of the procurement regime, the Council had "effectively agreed to act unlawfully in the future." This was in itself unlawful. Under the procurement regime, the courts are required to "consider the relevant transaction in its totality to establish whether the contracting authority has, by is "decision or action", procured, or contractually committed itself to procuring, works or services from a particular economic operator." For there to have been any other conclusion would have allowed the legislative regime to be defeated through a sequence of arrangements of the kind found in this case.

There was, however, no finding to the effect that the regime had been deliberately avoided: the Council was "lawfully entitled to attempt to find" an arrangement that fell outside of the public procurement regime.

Effect of the Voluntary ex ante Notice

The VEAT made by the Council in 2015 stated that the Council considered the agreement to fall outside of the public procurement regime because, inter alia, the agreement was an "exempt land transaction" and it placed no binding obligation on the developer to undertake any works.

Regulation 47K(4) of the PCR 2006 (its equivalent can now be found at Regulation 99(4) of the PCR 2015) sets out the requirements of a VEAT; the nature of the requirements was elucidated by the CJEU in Case C-19/13 Ministero dell'Interno v Fastweb SpA ('Fastweb'). What is required is a "clear and unequivocal explanation" of the reasons that led the contracting authority to act outside of the procurement regime. It is for the national court to decide whether the contracting authority "acted diligently" and whether it could "legitimately hold" that the conditions for not following the public procurement procedure were met. It was said to be "striking that the only part of the justification given in the notice that purports to explain what the development agreement actually is, rather than what it is not, is the statement that it is "an exempt land transaction." The rest is all in negative terms and leaves no picture of the contract as it truly is." To that end this was not a valid VEAT and could not preclude a declaration of ineffectiveness.

The Court granted a declaration of ineffectiveness, and ordered the payment of a nominal civil financial penalty by the Council. Permission to appeal to the Supreme Court was refused.