Procurement in a nutshell – James Waste Management LLP v Essex County Council
26th October, 2023
This Nutshell provides a summary of the recent case James Waste Management LLP v Essex County Council, and assesses its impact upon the application of current procurement regulations.
Essex County Council awarded an Integrated Waste Handling Contract (“IWH Contract”) to Veolia. The contract had a term of 8 years and 5 months. The estimated value of the IWH Contract was £300 million.
In June 2021, 8 years into the contract, the Council modified its agreement with Veolia. The modifications provided for additional waste processing services at other transfer stations not covered in the original IWH Contract. As these additional sites were not owned by the Council, a different fee structure was also required. These modifications were to be in effect for the remainder of the contract term (5 months). A competitor of Veolia, James Waste, who had been providing similar services under an alternative contract, brought a claim against the Council as a result of the modifications.
James Waste argued that the modification of the IWH Contract were ‘substantial’, and thus unlawful, under the Pubic Contract Regulations 2015 (PCR) 72(1)(e), as it rendered the IWH Contract materially different in character and changed the economic balance of the contract.
These arguments were unsuccessful.
- Regulation 72(8)(a) ‘materially different in character’
The Judge found the contract was not “materially different in character” as:
- The modifications did not provide for additional services
- The modification was a short-term contingency measure (five months of an eight-year contract)
- The increase in price was minor compared with the overall contractual value (0.81% of the total cost)
- Regulation 72(8)(c) ‘change in economic balance’
When assessing whether the modifications had tipped the economic balance of the contract in favour of the contractor, the Judge stressed that it was important to consider whether the remuneration payable as a result of the modification was “reasonable” and/or “commercial”.
The Judge also held that when considering the effect of the modification on the economic balance, it was important to consider the effect on the economic balance on the contract as a whole (i.e. across its entire term and scope).
As such, the Judge held that a minor price increase, in the context of a high-value contract, particularly where the increased price represents a reasonable/commercial payment for the relevant services, did not alter the economic balance.
- Regulation 72(8)(b)(ii) ‘conditions that would have allowed for the acceptance of a different tender’
The Court outlined that the test for this indicator is whether there is a realistic prospect that an alternative tenderer would have won the modified contract.
In this case, the Judge held that as the changes to the IWH Contract were minor, they were unlikely to have had a significant impact upon technical or commercial submissions.
- Regulation 72(1) “Safe Harbours” should be interpreted narrowly
The Judge held that PCR 72(9) imposes a general rule that a new procurement procedure must be conducted for modifications to public contracts and framework agreements. The ‘safe harbours’ provided for under Regulation 72(1) are exceptions to this overarching rule and should therefore be interpreted narrowly.
- The burden of proof does not lie with Contracting Authorities
The Judge held that the burden of proving whether or not the requirements of a particular safe-harbour have been met does not lie with Contracting Authorities but with the Claimant.
- The importance of a common sense approach
The Judge held that adopting a narrow approach to the interpretation of the safe-harbours “does not mean interpreting parts of them in a way which deprives them of real meaning”. The safe-harbours should be interpreted in a “common sense” way, taking into account all of the surrounding circumstances.
What this means
The underlying principle remains that modifications to public contracts should not be made without a new procurement as the “safe-harbours” in Regulation 72 will be interpreted narrowly. As such, care is needed to ensure that any contractual changes are kept to the minimum required and are reasonable and commercial in all of the circumstances.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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