16 March 2007
Just as the Barker review points the way to more planning incentives, along comes the European Union with yet another fly in the ointment. Now even section 106 projects are threatened by procurement rules
The publication in December 2006 of the Barker review of land use planning highlighted the importance of improving incentives to planning authorities. The current mechanism generally involves a developer making a contribution in kind under section 106 of the Town and Country Planning Act 1990.
Over the years planning authorities have sought to use s106 agreements in various ways. Initially attention focused on hard landscaping, such as access and visibility works.
More recently, though, some authorities have required money to be spent in ways that support local planning policies, for example on public art or environmentally sensitive travel-to-work plans.
According to the Barker review, s106 payments raised more than £1.15bn in revenue in 2003/04. Barker also raised the possibility of developers making goodwill payments to communities. But before hard-pressed finance officers start celebrating this potential new source of income they might wish to consult their legal colleagues. This is because of developing case law coming from the European Court of Justice.
It is the construction activity that is undertaken in kind that gives rise to the greatest risk of challenge. The argument runs that if a local authority asks a developer to build it a library or community centre as part of a development, this counts as procurement. That means it should be put out to tender and advertised in the Official Journal of the European Union.
Traditionally, most planning authorities have considered that s106 agreements do not give rise to any procurement obligation, even when they involve the construction of public sector infrastructure. However, the situation is complicated by the wide definition of public works, in the European directive and UK procurement rules, which includes indirect procurements undertaken by third parties to the specified requirements of the contracting authority.
In the ECJ case of La Scala (C-399/98, [2001] ECR I-5409), the City of Milan approved a housing development on a former industrial site in return for a new public theatre on the land, initially to house the renowned La Scala opera company during the renovation of its opera house. The court held that the obligation to construct the public works should have been advertised in an OJEU-compliant competition.
All parties accepted that the construction of the Teatro degli Arcimboldi gave financial benefits to the local authority well in excess of the then ¬5m threshold, above which contracts should be put out to tender; and that the construction would normally amount to 'public works'.
The local authority, however, argued that there was no 'contract' because the obligation to undertake the construction contract arose out of national law. It also argued that it could not choose the contractor, because the obligation would always be borne by the landowner as the party applying for planning permission.
The court rejected those arguments because it was open to take the money in lieu of the works, and the obligations were in a development agreement and contractually enforceable.
In the UK, most s106 agreements relate to planning gains well below the threshold. However, recent developments suggest that the threshold does not provide the level of exemption that previously existed ('Back to the rule book', Point of Law, September 1521, 2006). One feature of the La Scala case is the link to an internationally significant building. Such a project would probably have attracted international bidders had the work been advertised. The same cannot be said for the construction activity connected with many UK s106 agreements.
Renewed attention to the La Scala case has been provided by a recent challenge brought by the European Commission against the Valencia autonomous authority. Valencia's land and town planning law hit the headlines in 2005 when it was described as a 'land grab law' under which residents could lose 10% of their property.
Its replacement, the Ley Urbanistical Valencia, is part of a relatively sophisticated arrangement under which a proportion of development land is transferred free of charge to the local council as a contribution to the provision of public services or free spaces in a development. It is also the owners of development land that must finance and execute the necessary public sector infrastructure works.
At the end of 2006, Spain received a third formal request from the EC asking it to require Valencia to ensure that the LUV did not involve indirect procurement of works. Spain is resisting this suggestion. If matters cannot be resolved, the case will go to the ECJ this year. The outcome might shape the UK's ability to improve incentives to planning authorities.
Stephen Cirell is head of local government and Professor John Bennett is a consultant solicitor with Eversheds. They are co-authors of Best Value law and practice. Professor Bennett is also co-author of public procurement law and practice
PFmar2007
