The answer determines whether the full weight of procurement law applies, and contractors need to be alive to the risk that procurement rules can be engaged at various stages of a development, not just at the outset.
A recent case is a useful reminder of where the line is drawn between a public works contract and an exempt land agreement.
The Key Distinction
The public procurement rules do not apply to the pure disposal of land. Regulation 11(1)(a) of the Public Contracts (Scotland) Regulations 2015 exempts contracts for the acquisition or rental of land, existing buildings, or other immovable property from the procurement regime.
However, a "public works contract" is defined broadly. Critically, it extends beyond conventional construction contracts to capture the realisation, by whatever means, of a work corresponding to requirements specified by the contracting authority exercising a decisive influence on the type or design of the work.
That distinction is crucial. A transaction may look like a land deal but still amount to a works contract if the public body has exercised decisive influence over what is ultimately built.
What the Courts Look For
Courts will look at the economic reality and the totality of the transaction, not the label the parties apply to it. Key considerations include:
Main purpose: If the principal purpose of the arrangement is to deliver a facility that meets the authority's requirements, procurement law is likely to apply regardless of how the deal is structured.
Decisive influence: If the authority has had decisive influence over the type, design, or specification of the works then the land exemption is unlikely to be available.
Enforceable obligation: Where there is no legally enforceable obligation on the developer to carry out works, there may be a stronger argument that the arrangement is not a works contract. But this must be genuine and consistent throughout the documentation.
Artificial structuring: Selling land to place a developer in a position of exclusivity, in order to avoid a competitive process, risks being characterised as an attempt to circumvent the procurement rules.
A recent 2026 Court of Session decision reinforced this point. Although the case did not concern a conventional land and development transaction, the court applied the same test derived from the Faraday line of authority and confirmed that an arrangement can become a public works contract once a legally enforceable obligation to deliver the works crystallises, even if no such obligation existed when the arrangement was first entered into.
For contractors and developers, the important point is that procurement risk is not fixed at the start of a project. Transactions can evolve in a way that changes its legal status at any stage, so contractors should keep the position under review as a development progresses, not just when terms are first agreed.
Practical Takeaways
A pure land disposal with no obligation on the contractor as to what is built falls outside the procurement rules. In practice, however, this leaves the public body with no control over the development outcome, which the public body may find commercially unacceptable and may seek to address through other means.
Structuring the transaction so that the contractor is under no immediately enforceable obligation to carry out works can reduce procurement risk, in line with Faraday. This approach must be consistent throughout the documentation, and any provision incompatible with the absence of a build obligation may undermine the position. Contractors should be alert to this risk arising at later stages too, for example where a conditional obligation is later triggered or the parties' arrangements are varied.
Where a contractor is to construct facilities meeting specific public body requirements in exchange for consideration, this usually should be treated as a public works contract and procured accordingly. This is the most straightforward way for contractors to eliminate procurement risk entirely.
The issue arises outside Scotland or where the Procurement Act 2023 is engaged, for example for builds relating to reserved matters under the Scotland Act 1998. The underlying analysis is the same: contractors need to assess whether a legally enforceable obligation to carry out works exists, and if so at what point. However, the statutory test under the Procurement Act 2023 is formulated slightly differently from the test under the Scottish Regulations, so contractors operating across both regimes should take care not to assume the two tests align exactly.
For contractors and developers working with public bodies, the key is to consider the works contract vs land agreement question at the outset and revisit it whenever the structure of the deal changes. This will help mitigate any risk and keep both parties on the right side of the line.
This article was first published in Scottish Construction Now.
Public procurement, development agreements and evolving regulatory requirements are among the key issues currently shaping Scotland's construction sector. As joint legal sponsors of the Scottish Construction Summit, MFMac and Axiom Advocates look forward to exploring these and other important topics with industry colleagues on 22 October 2026. Register here.
