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Council hit with procurement and public law challenge over hotel funding decision

Two hotel groups have threatened Bournemouth Borough Council with a public law and public procurement challenge over its decisions earlier this year to approve the funding of the construction of a hotel on the site adjacent to Bournemouth International Centre.

The Bournemouth Echo has published a pre-action protocol letter from law firm Dentons, which is acting for Bespoke Hotels and Peel Hotels. They argue that the project “will be an irresponsible use of precious council resources, with a real risk of harm to frontline services, given the extent of the borrowing necessary to fund a project that the private sector has walked away from”.

The claimants are advancing three grounds for the proposed claim:

1. Procedural and public law issues. These included that:

(a) the council’s proposed expenditure could not properly be considered to be an investment in any normal sense, but rather an acquisition of works or services. Bournemouth is relying upon the power under s.12 of the Local Government Act 2003. Even if they were wrong on this, and the council’s involvement could be categorised as an ‘investment’, the claimants question whether the s.12 power can be relied upon;

(b) the council has materially departed from s.15(1) LGA 2003 statutory guidance “in a manner which has not been adequately justified”;

(c) insufficient regard has been taken of the Prudential Code for Capital Finance in Local Authorities;

(d) there has been a breach of fiduciary duties owed to council tax and business rate payers;

(e) there was a failure by the council to discharge its obligations to adequately consult in relation to the discharge of its best value duty;

(f) the decisions were flawed insofar that they fail to take account of the council’s obligations under s. 233 of the Town and Country Planning Act 1990 (as amended) and s. 123 of the Local Government Act 1972.

2. State aid. The claimants argue that the market intervention proposed by Bournemouth in relation to the project amounts to state aid. In particular they said:

(a) the provision of 100% funding of the development costs on non-market conditions amounts to the conveyance of an aid;

(b) the aid (the funding) is to be provided using the council’s money, involving state resources;

(c) the aid will distort competition by favouring certain undertakings;

(d) the aid will affect trade between member states by virtue of the fact that Bournemouth is a nationally important holiday destination and the host of a number of international conferences.

3. Procurement law issues. The claimants consider that the procurement of the project is regulated as a services concession and therefore subject to the Treaty principles of equal treatment, non-discrimination and transparency. Various changes – including the change between the first and second procurement procedures – amounted to a material change in the scope of the project. “Compliance with the Defendant’s obligations to conduct the procurement of services concession contracts in a transparent way requires that the procurement is terminated and re-advertised on a revised basis. In addition, the inclusion of the 10-year insurance cover at some point during the process would have made the other bidders relatively bids more attractive [sic], giving further grounds of challenge.” This was without prejudice to any grounds of challenge that the claimants may bring in relation to a Voluntary Ex Ante Transparency Notice issued by the council and published on 10 April 2018.

Bill Cotton, Bournemouth’s Executive Director for Environment & Economy, said: “It’s disappointing that two of the town’s major hotel operators do not support this investment which aims to attract new visitors to Bournemouth.

“We have referred the matter to our external legal advisers and await their advice.  It would be inappropriate to comment further at this stage.”

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