Regeneration Projects – Procurement Considerations

In this article we look at the public procurement issues associated with regeneration projects, for both local authority / Registered Provider landowners and developer partners.

Do the public procurement regulations apply?

The regulations (or to give them their formal title, the Public Contracts Regulations 2015) apply wherever a “contracting authority” wishes to procure a public works contract with a value in excess of the applicable financial threshold, currently £5,336,937 (inclusive of VAT). “Contracting authorities” include government departments, local authorities and not for profit Registered Providers (RPs) of social housing. 

However, contracts for the disposal of a freehold or leasehold interest in land are exempt from the Regulations, so don’t need to be tendered in accordance with them.

The contractual arrangements on a regeneration project will often involve the transfer or lease of the site by the landowner to the developer partner, together with a requirement to carry out works. So can the landowner can categorise the project as a contract for the disposal of land and thus exempt from the Regulations, or a public works contract that it must tender in accordance with them? 

The general rule established through the case law is that provided that the agreements between the landowner and the developer partner do not place the developer under any positive and legally binding obligation to carry out works to a specification which the landowner has prescribed or had a decisive influence over then it is likely that it will be categorised as a contract for the disposal of land and will not be subject to the Regulations. A condition in the agreements that states that any works undertaken on the site must be in accordance with the planning permission would not typically be regarded as a positive and legally binding obligation to carry out works, provided that the condition:

• does not actually oblige or require the developer to carry out the works; or
• if the developer chooses to carry out the works, does not place it under an obligation to carry out the works to a specification which the landowner has prescribed or had a decisive influence over.

In practice, though, the landowner will not be prepared to dispose of the site to the developer partner without including conditions which place it under a positive and enforceable obligation to carry out works to certain requirements and standards. It is for this reason that many regeneration projects will be categorised as public works contracts so will need to be competitively tendered in accordance with the Regulations.

Procuring a regeneration project

If the Regulations apply to the landowner’s regeneration project the selection of its developer partner must be procured through a compliant procurement process.

Broadly speaking the landowner will have two options:

• Conduct a “full” procurement process using one of the tendering procedures prescribed by the Regulations; or
• Procure a developer from a compliant framework agreement.

Option 2 is likely to provide a quicker route to market and involve less procurement resource than Option 1, but under Option 1 the landowner would have greater freedom and flexibility to prescribe the terms of the legal agreements to be entered into with the successful developer rather than having to use the forms of agreement prescribed by the framework. There may also be some benefit in opening up the opportunity to the market as a whole, rather than only a limited pool of framework developers.

In procuring the project the landowner will need to ensure that the selection of a developer partner is made in a fully transparent way, and that all bidders participating in the procurement are treated fairly and equally.  In particular:

• The structure and format of the procurement process will need to be clearly explained to bidders from the outset.
• The tender documents and proposed legal agreements should be made available to bidders via a web-portal from the commencement of the process.
• The scope of the project and the landowner’s key requirements will need to be clearly articulated.
• The criteria and scoring methodology that will be used to evaluate tenders received (both financial and qualitative aspects) must be fully and clearly set out in the tender documents.
• If developers are permitted to submit “variant” bids as well as a “standard” bid, is it clear how variant and standards bid will be evaluated against one another?

Considerations for bidders

Some considerations for bidders participating in a competitive procurement process for a regeneration project include:

• Which legal entity should submit the bid and be the “bidder”? Can it satisfy all of the landowner’s minimum requirements for participation in the procurement, or does it need to bid in consortia with other entities that can?
• To what extent can it accept the landowner’s proposed legal agreements, without significant amendment?
• Is the way in which both the financial and qualitative aspects of the bid submission will be scored by the landowner clear from the tender documents? If not, this should be raised with the landowner at the earliest opportunity given the impact it will likely have on tender preparation.

The New Procurement Bill

The New Procurement Bill is expected to come into force in the UK sometime in Autumn 2024. Under this regeneration projects will continue to have to be competitively tendered if the project places the developer under a positive and enforceable obligation to carry out works in accordance with the landowner’s requirements. However, under the Bill the local authority / RP landowner will have far greater freedom to structure its procurement process as it sees fit, provided the process complies with the key principles of transparency, fairness and integrity. There will also be greater scope for the parties to agree variations to regeneration projects throughout their life, without triggering the need for the landowner to have to retender the project.

Devonshires has taken all reasonable precautions to ensure that information contained in this document is materially accurate however this document is not intended to be legally comprehensive and therefore no action should be taken on matters covered in this document without taking full legal advice.