The case of Lightways (Contractors) Limited v Inverclyde Council  CSOH 169 was heard by the Scottish Court of Session in December 2015. The court held that a contract awarded for street lighting services under a framework agreement breached the procurement rules, as it was awarded to a subsidiary company that was not independently named as a party to the framework agreement.
In 2013, Inverclyde Council (the Council) held a mini-competition under a framework agreement for the supply of street lighting services and awarded a contract to Amey Public Services LLP (Amey LLP). This contract was re-procured under the same framework agreement in 2015 and the Council again awarded the contract to Amey LLP.
The suppliers appointed to the street lighting service framework agreement included Amey OW Limited (Amey OW). Amey OW and Amey LLP are sister companies and both members of the same group of companies, but have different management committees and directors as well as different employees, assets and businesses.
Prior to 2013, Lightways (Contractors) Limited (Lightways) had supplied these services to Inverclyde Council. Lightways were not a party to the framework agreement. Lightways challenged the 2015 call off agreement on the basis that Amey LLP was not a party to the framework agreement and claimed the award of a contract amounted to an illegal direct award, made without prior advertisement.
The Court’s Decision
The court held that Lightways were permitted to bring a claim despite not being a party to the framework agreement. The court considered that Lightways had potentially lost an opportunity to tender for the 2015 contract. Lightways has standing to bring a claim as it was an 'economic operator which claimed to have suffered loss and damage in consequence of a breach of the Council’s obligations under the procurement rules'.
The Council argued that it had made a clerical error and the contract was intended to have been awarded to Amey OW, not Amey LLP. The Council also argued that the contract would have been awarded by the Council on exactly the same terms, and it had clearly intended to offer the contract to a company which was a party to the framework agreement.
The court held that the Council had breached the procurement rules by awarding a call off contract to a company that was not a party to the framework agreement. The court also considered that the Council intended to award the contract to Amey LLP in the mistaken belief that it was a party to the framework, and therefore this was not a mere clerical error that could be rectified by novation or rectification of the contract. The court determined that the contract was ineffective and cancelled the call off contract.
This was the first occasion where a UK court applied ineffectiveness to a framework call off. It highlights the need for contracting authorities to take care to follow the correct procedures when calling off contracts under a framework agreement. Since this case, we have seen increased scrutiny and bidder complaints on framework agreements, which is perhaps due in part to this case.
In R (Faraday Development Ltd) v West Berkshire Council, the High Court dismissed a judicial review application in relation to the award of a development agreement between St Modwen Developments Limited (SMDL) and West Berkshire Council. This case highlights some of the many considerations local authorities face when entering into development agreements on a no procurement basis and is perhaps an encouraging affirmation of the precedents set in recent case law on this subject.
The Council entered into a development agreement with SMDL for the regeneration of an industrial site it owned. Under the deal, the Council would retain the ownership of the site and generate a revenue income through ground rents on the redeveloped site. The freehold interest in the site was held by the Council, but was subject to long leasehold interests. The claimant held various leasehold interests in parts of the site which it had acquired with a view to carrying out its own redevelopment project.
The Council considered proposals (received outside of a regulated procurement process) for the redevelopment of the site, which included proposals from the claimant and SMDL. The Council decided to proceed with SMDL’s proposal due to its greater experience in delivering schemes of that nature.
The Development Agreement required SMDL to draw up plans for the proposed development, the initial infrastructure works and valuation appraisals. A steering group made up of equal members from the Council and SMDL was responsible for the strategic objectives of the development and monitoring the progress of the development.
There was no obligation in the Development Agreement for SMDL to carry out any development on the site. SMDL had a considerable commercial incentive to proceed with the development as it had the potential to generate a significant profit for SMDL (aside from the resources it had committed in fulfilling its obligation to draw up plans (etc.) for approval by the steering group and to obtain planning permission).
Faraday Development Limited (Faraday) issued Judicial Review proceedings in respect of the Council’s decision to enter into the development agreement on the basis that:
The Court’s Decision
In considering each of the grounds, the court came to the following conclusions:
This case perhaps highlights the court’s willingness to apply the precedent established in previous case law including, most recently,
R (on the application of Midlands Co-operative Society Ltd) v Birmingham City Council. This approach will not be appropriate in all cases and careful consideration should be given on a case by case basis for the appropriate structure for the development agreement.
Whether the authority wishes to have a decisive influence over the development and impose an enforceable obligation on the developer to proceed with the development, those agreements do generally amount to public works contracts rules and a fully regulated procurement process would be required.