Locked out of a solution?

The Public Contracts Regulations 2006 apply to 'contracting authorities' that seek tenders for a public contract caught by the regulations. The regulations affect the way in which a regulated public agreement can be awarded by local authorities and therefore prima facie affect a local authority's ability to enter into an exclusivity agreement.

Developers invariably insist on exclusivity agreements before embarking upon months' worth of planning applications, environmental surveys and tendering for subcontractors in order to safeguard their position. The likely financial loss that they would face if they were 'gazumped' could be considerable, not to mention avoidable with an exclusivity agreement.

Industry practice v regulations

Local authorities are being faced with the problem of trying to make what is 'industry practice' fit in with the regulations to enable transactions to go ahead. Local authorities up and down the country command large property portfolios, and to ensure that the public's money is being put to the best use, these portfolios must be managed with a commercial approach.

The aim of an exclusivity agreement is to 'lock out' any other potential buyer by placing a bar on the seller not only from disclosing any details of the property in question, such as title matters, but also from entering into negotiations with any third party concerning the land. An exclusivity agreement also calls for co-operation to enable the prospective buyer to obtain all the necessary details and documents required in order to decide whether it is viable to proceed.

The crucial point with such an agreement is that the parties do not contract to enter into an agreement for the sale and purchase of land, as a contract to enter into a contract is not enforceable. Even so, from a local authority's point of view, whether or not enforceable, the agreement could fall foul of the procurement rules.

The enactment of the Public Contracts Regulations 2006 reinforced a local authority's duty to be transparent in its actions by requiring it to provide details of its selection criteria for service contracts and to advertise such contracts in the Official Journal of the European Union (OJEU), where they are expected to be awarded during the following 12 months.

Level playing field

The regulations reinforce the EU's historical aim of free trade with provisions that strive for a level playing field for the award of service contracts. In a nutshell, local authorities need to plan ahead which service contracts are required over the next 12 months, to advertise certain details of those contracts in the OJEU,

commence the tendering process and have an open set of criteria which could be scrutinised under the regulations.

If an exclusivity agreement relating to land is entered into which typically lasts for 18 months, more often than not the local authority would be expecting to award the service contract during the first 12 months. Notwithstanding that under the regulations, the local authority would be required to advertise certain details, it would be precluded from doing so under the agreement as that would be providing details to a third party.

Some might suggest that a local authority could delay intending to award the contract for a year and before then, enter into an exclusivity agreement. This begs a bigger question than whether such an approach would breach the regulations: would it be in the local authority's best interests to delay in order to give a developer a head start?

Under the terms of an exclusivity agreement the developer usually requires the local authority to appoint a senior officer who is to then liaise with the developer, look through the developer's proposals for planning and infrastructure and work with the developer to produce proposals that the council would accept, but without the council actually accepting them.

This, in terms of time and resources, would be costly to the council without actually having achieved anything apart from an acceptable proposal from a favoured developer. The developer would be favoured in the sense it would be the only developer with a fighting chance of getting the contract because of the exclusivity agreement precluding any other party from obtaining any information about the land in question.

No perfect alternative

The current industry practice of entering into such agreements in relevant transactions conflicts with the regulations as it denies those who want to tender to actually do so. An alternative would be for developers to enter into 'notification' contracts with local authorities, whereby the local authority notifies any other developer who seeks to work closely with it with a view to lodging a tender.

This would not achieve as good a foothold as an exclusivity agreement, but it would give a developer a heads up which, in the very least, is better than nothing. While local authorities need to be commercial in their approach and actions, they also need to ensure that they provide an open and level playing ground, as echoed in the regulations.