EXCLUSIVE: Explaining new guidance on procurement for regeneration schemes

Friday, March 19, 2010

Paul Ellis, UK head of development consulting at DTZ, considers how the public sector can improve the process of procuring development agreements

The impact of the European Court of Justice's controversial Roanne ruling in 2007 is still being felt in towns and cities across the UK. Coupled with the effects of recession, the development industry is caught in the eye of a perfect storm.

The Roanne ruling suggested that public bodies must go through a formal tendering process, in accordance with European directives, before signing development agreements requiring developers to carry out public works. It resulted in massive delays for numerous regeneration schemes in the UK, including the Stratford Island project in east London, the Eden Quarter scheme in Kingston upon Thames and the Arndale Centre Extension in Eastbourne. Consequently, developers and the public sector have been lobbying hard for clarity on when to apply the rules and what they can do to minimise the likelihood that they will need to apply them.

In October, the Office of Government Commerce (OGC) issued guidance in an attempt to clarify the implications of the Roanne ruling. The guidance is not intended to be definitive or comprehensive but supports the European Union's initial ruling on the Auroux versus Roanne case in 2007. This endorses the procurement of development agreements through OJEU, where the public body wants to maintain a level of control as landowner, rather than merely protect its position or relying on planning control. It also suggests that other contracts, such as planning agreements and agreements relating to the exercise of compulsory purchase powers, may be covered.

The publication is not the clear cut guidance the industry had hoped for and, in some instances, will not be good news when the industry is generally looking to simplify ways of working as well as reducing speculative costs and risks. Developers aren't keen to engage in expensive public procurement processes, whilst local authorities incur considerable costs running the process and risk seeing fewer developers responding to development opportunities. There is a chink of light in the guidance, in the form of scenario analysis, which questions whether or not the procurement rules should apply. This element should certainly be scrutinised to identify ways of justifying a process if OJEU is avoided.

However, part of the problem with the implications of the Roanne case is that it has often led to slow and over-elaborate competitive dialogue processes. In reality, there is a lot that can be done to make the process simpler, cheaper, more streamlined and more efficient.

Early and thorough preparation is crucial. Rushing to market under pressure to deliver might seem like a good idea to speed the process, but is likely to incur additional time and expense further down the line. Time should be taken to really consider the requirements and objectives of the project. Making a commercially realistic assessment of what the developer should be asked, and feasibly expected to deliver, will ensure a tight and achievable brief from the outset.

Once the process is underway, ensuring the selection process moves things on quickly is also important. This depends on clear and measurable criteria at every stage that candidates can be easily assessed against. The selection criteria should be firmly tied to the objectives of the brief and be easily understood and addressed by participants. From a developer's perspective, being de-selected early and decisively is preferable to hanging on longer in a bigger selection pool of indistinguishable candidates with a limited chance of success.

Standardisation of contracts and other collateral can also reduce the time and money spent pouring over round after round of contract amendments, clauses and caveats. Whilst the competitive dialogue process is still relatively new in procurement terms, and each brief is very different, there are certainly areas where lessons have been learnt and experience gained. Harnessing this expertise will prevent reinventing the wheel.

Pragmatism is often undervalued in the procurement process. Starting the relationship off on a pragmatic footing will not only save time and money in the negotiating process, but will stand both parties in good stead for a productive relationship moving forward. Be firm and set high standards, but posturing to gain the perceived upper hand is likely to rack up costs and put strain on the partnership before it's even begun.

The OGC's guidance is not definitive and does not provide the certainty that the industry had been hoping for. Further guidance is also expected in due course. However, regardless of the eventual resolution, time spent focusing on what can be done to make the process work more effectively within the legal framework will not be wasted at a time when public sector-led regeneration is critical for the development of towns and cities throughout the UK.