Public Works or Works Concession? (or) Plea Bargaining meets Procurement

Below is an article written by Allan Donovan.

This is an intriguing little question that has come to light courtesy of the recent intervention of the EU Commission against the UK government and York City council.

It takes the form of a "reasoned opinion" from the Commission and, as such, there is very little information in the public domain about the case, although the Eversheds website has an informative piece here, dated 23 July 2009.

The direct award of a contract for residential development of a piece of land by York City council incurred the wrath of the Commission who said that the contract should have been advertised in order to comply with EU procurement rules. Interestingly, they said it should have been advertised as a public works concession, rather than a public works contract. The UK now agrees that it should be classified as a concession although that appears to be something of a change of heart.

Unfortunately, with so little information publicly available we are left to make a number of assumptions about the case and that goes for the question of whether the classification as a concession is correct. It is worth remembering that the Commission and the ECJ do not always see eye to eye, as demonstrated in the very recent case involving German rubbish.

Following Roanne, the first assumption must be that the council had some say in stipulating what should be built. The definition of a concession in public contract regulations, likewise, leads to an assumption that the developer was to obtain, at least some of his "reward" from the sale or rental proceeds of the property on the developed site.

Now, the advertising and tendering requirements for a concession are less onerous than that for, say, a competitive dialogue procedure. But whilst such an attractive proposition may, in itself, have been sufficient temptation for the UK's change of heart, does that necessarily mean that all such agreements will be properly classified as concessions?

If a concession requires a positive act from the council, such as "the grant of a right to exploit the work"; then does that not imply that the council continues to own the land and are giving something away to the developer? An analogy would be where a council owns land and wants a bridge to be built. The council still own the land and may own or have a reversionary title in the bridge itself but the developer is allowed to retain the toll monies, etc. There is little difficulty in viewing this as a concession.

But can the same be said if the freehold of the land has been transferred to the developer, regardless of whether there were conditions attached to the transfer such as what could be built? Are the council continuing to "grant a right to exploit the work", or could the conditions be seen as attaching only to the transfer with any resulting income from rental or sale of property being viewed as something "incidental" to the development agreement? Is it possible that the council can still be said to be "granting a right" over something that they no longer continue to own?

The relevance of any of these questions will depend upon the clarification of the facts of this particular case and whether the ECJ get the opportunity to consider the Commission's reasoning.

In the meantime, there could be an interesting hiatus with development procurement being classified as works concessions, particularly once national courts start presiding over "direct award" claims.

If a breach of the requirements for a works concession is considered a less heinous crime than the direct award of a public works contract that should have been procured and the punishment is going to fit the crime; does that not provide clear commercial reasons to accept the Commissions view that the contract was a concession and take a far more cavalier approach to accepting the more lenient consequences?

Will we now see an episode where local authorities are prepared to take a chance that the development will be classified as a concession and kop a guilty plea to the lesser offence?

Allan J. Donovan © 2009

Allandon Services Limited