Procurement in a Nutshell: The ‘Known Risk’ Exemption under the Procurement Act 2023

This recent tender notice carefully considers what those known risks are in the context of the appointment of a development partner for a regeneration project.

Schedule 8 Procurement Act 2023

A Contracting Authority is able to reserve the right to amend the contract because Schedule 8 of the Act outlines a number of ways in which a contract can be legitimately modified.

Schedule 8, Paragraph 5 provides a modification of a contract  is permitted if the contracting authority considers that:

1. A known risk has materialised and it has not been caused by anything the contracting authority did or failed to do
2. Because of that fact, the contract cannot be performed to the satisfaction of the contracting authority
3. The modification goes no further than necessary to remedy the fact
4. Awarding a further contract (instead of modifying the contract) would not be in the public interest
5. The modification would not increase the estimated value of the contract by more than 50% (ignoring the fact the risk has materialised). This limb does not apply if you are dealing with a utilities contract

Schedule 8 Paragraph 6 defines a “known risk” as a risk that the contracting authority considers:

1. Could affect the satisfactory performance of the contract, but
2. Because of its nature, could not be addressed in the contract awarded, and
3. Was identified in the tender or transparency notice for award of contract, including by reference to meeting the criteria for a “known risk” (points 1 and 2) and the possibility of modification under this exemption (as above).

When considering whether awarding a new contract would be in the public interest, a  contracting authority must consider:

1. Whether a new contract could provide more value for money
2. Technical and operational matters

Government guidance give some examples of matters which could be treated as known risks, such as site surveys which reveal previously unidentified ground conditions which will impact on delivery.

Conclusion

If a contracting authority can meet all of the criteria outlined above and a known risk materialises, a contract can be legitimately modified.

For further information please contact Tim Care or Melanie Pears in our Public Sector team.