Agreement for lease or public works contract? Austria no longer destined to find out the hard way!

In a previous ebriefing we profiled the case of Commission v Austria*, in which Wiener Wohnen (a contracting authority linked to the City of Vienna) contracted for a landowning developer to grant to them a 25-year lease of a new head office building they were constructing on that land.

The Advocate General had said that the arrangements were an unlawfully let public works contract because Wiener Wohnen had exercised a ‘decisive influence’ over the design and construction of the building.

The European Court of Justice, who has the last word on this, came to the opposite conclusion. They said that the level of influence over the work did not amount to a decisive influence since it, “did not exceed the usual requirements of a tenant in relation to a building such as the complex concerned”.

The court said that a contracting authority will exercise a decisive influence over the design of a building if they “exercise that influence over the architectural structure of the building, such as its size, external walls and load-bearing walls”.

However, they said that “stipulations concerning interior fittings may be regarded as demonstrating a decisive influence only if they are distinguished because of their specificity or scale”.

The choice of options offered by the developer was also insufficient to amount to a decisive influence.

This improves the prospects of a contracting authority being able to argue that, where properties are being constructed for them, the arrangements will not be a public works contract. This should now be arguable if the contracting authority has no more control over the design or construction of the development than would be usual for an ‘off-plan’ purchaser.  

In many cases, a contracting authority will want greater control than this. For a limited number of cases, though, where the authority is paying a deposit and the balance on completion (rather than stage payments or payments against valuations under a JCT contract) and is content with the developer’s standard house types, it may be able to argue that the arrangements are a land transaction rather than a public works contract. This is a developing area of procurement law, though, and great care is needed over these kinds of arrangements.

For more information

For advice on whether a potential development structure is likely to be classified as a public works contract and how to deal with this, please contact Andrew Millross or your usual contact within our construction and procurement department.

*Commission v Republic of Austria, Case C-537/19

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