Herbert Smith, LLP, London and Brussels

On 16 October 2009, the Office of Government Commerce (OGC) in the United Kingdom issued a Policy Note giving important preliminary guidance on the application of the public procurement rules to development agreements. Local authorities and property developers have been crying out for clarification of this complex issue ever since the Auroux ruling in 2007. In that case, the European Court of Justice (“ECJ”) ruled that a local authority development scheme in France amounted to a public works contract that had to be awarded pursuant to a competitive tender under the EU Procurement Directives. The OGC guidance does not change the law but it does provide helpful examples of the circumstances which determine the likelihood that a development agreement will be subject to the procurement rules.

In Case C–220/05 Jean Auroux v. Roanne, a French local authority signed a “public development agreement” with a second entity (“the developer”) which provided for the construction of a new leisure centre and various other works. The developer would acquire land with a view to organising an architectural competition, managing construction and procuring funding for the project. Upon a referral from a French court, the ECJ ruled that the development agreement constituted a “public works contract” and therefore needed to be put out to tender under the EU procurement Directive.