Agree Variations to Development Agreements Subject to Procurement Rules at your Peril


The High Court has recently declared that Winchester City Council unlawfully varied the terms of a Development Agreement in breach of public procurement rules by not holding a new procurement exercise under the Public Contracts Regulations 2006 when they significantly altered the terms of the Agreement. The variation to the agreement had been requested by the developer.

The Court declared that the Council committed a serious breach of the procurement rules by acceding to the developer’s request, resulting in a failure to follow a transparent, competitive and non-discriminatory procurement process. The variations to the agreement, viewed holistically, “resulted in a contract which was materially different in character, such as to demonstrate the intention of the parties to re-negotiate the essential terms of the contract.”

R. (on the application of Gottlieb) v Winchester City Council, [2015] EWHC 231

Summary of the Facts

In December 2004, Winchester City Council entered into a public works concession contract with a developer for a mixed-use development in the city centre. The Agreement stated that the developer would receive a share of the profits from the development and that they would pay a fixed sum to the Council during the construction period and a ground rent throughout the duration of the Lease. A procurement exercise was not carried out by the Council before entering into the Agreement; however the developer was required to invite tenders for the construction works.

In June 2014, the developer sought consent from the Council to vary the form of development specified in the Agreement and to vary the terms of the Agreement itself. The variations were extensive, including a reduction in residential units; amendments to the provision for affordable housing; removal of a Shop Mobility Centre; and the deletion of a provision for a market store amongst further revised and additional provisions. A local councillor and member of the Winchester Deserves Better Campaign brought successful Judicial Review proceedings against the Council, which declared the agreement to be unlawful.

Conclusion

This case highlights the fact that it is pointless for Local Authorities to allow Developers to persuade them to significantly alter the terms of development agreements, as this will simply result in a breach of procurement rules, making the contract unlawful. Councils must be acutely aware that any amendments to the original agreement must not materially change its character, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract.

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