Procurement in a Nutshell – Public Procurement Contracts
30th November, 2020
Public Contract Regulations 2015
Regulation 72 – Modification of Contracts during their term
It is sometimes necessary to adjust a contract, and the Public Contract Regulations have a mechanism for allowing adjustments to be made without the need to re-tender under certain circumstances and where there is no ‘material change’.
It is therefore important to decide whether something is a material change when considering a renewal, extension or alteration to a current contract.
If the proposed change constitutes a material change, it may be that a new competitive tendering exercise is required. If it doesn’t, then the desired alterations to the contract may be permitted without the requirement to retender.
What is a material change?
A material change is one which alters the essential terms and/or the overall nature of the original contract. There are three conditions where the variation is considered to be ‘material’:
- Introducing conditions which would allow for the admission of tenders other than those initially admitted
- Extending the scope of the contract to cover services not initially covered
- Changing the economic balance in favour of the contractor in a manner which was not provided for in the terms of the original contract
A substitution of a new contractual partner is considered to be a change to the essential terms unless the substitution was provided for in the initial contract or the transfer was to a wholly-owned subsidiary of the original contractor. Other potentially material changes are:
- A considerable extension to the contract term
- A change of sub-contractor, particularly where choice of the subcontractor was a factor in awarding the contract
- An additional location was added
- Where an authority has failed to enforce a contract
- Additional services are required
- A change in scope
Are there exemptions?
Yes, there are. It may be possible to award a new contract without a retendering exercise where:
- There was an express review clause.
- The modifications to the contract or framework agreement were provided for in the initial procurement documents;
- Clear, precise and unequivocal review clauses were used to define the scope, nature and conditions of the change.
- Additional works, services or supplies have become necessary during the course of the contract but where a change of contractor would cause ‘economic or technical’ difficulties, or would cause ‘significant inconvenience’ or ‘substantial duplication of costs’.
- And only where the price increase does not exceed 50% of the original contract value.
- The need arises from circumstances which a ‘diligent contracting authority’ could not have foreseen.
- The overall nature of the contract is not altered;
- The increase in price is less than or equal to 50% of the contract value.
- There is an unequivocal review clause or ‘universal or partial succession’ where the initial selection criteria are met.
- The modification is not deemed substantial, ie
- Does not extend the scope of the subject-matter ‘considerably’
- Does not introduce a new contractor
- The value of the modifications is less than 10% of the initial contract value (for services and supplies contracts) or less than 15% of the value (for contracts for works).
Modifications in specified cases should be published by way of an OJEU notice.
Varying Contracts in the COVID-19 Era
At the beginning of the COVID-19 pandemic the general guidance was that the pandemic was unforeseen and that this could be considered to be grounds for varying a contract.
It is no longer appropriate to consider the ongoing situation as unforeseen. Parties whose contracts have been affected have already had time to make necessary short term changes and time to consider longer term options. It is unlikely that any change now could be justified as unforeseen due to COVID-19.
However, as always, it may be possible to vary the contract under one of the other criteria listed above.
Varying Contracts in the Brexit Era
A draft Regulation has gone before Parliament to amend the Public Contracts Regulations in the light of Brexit.
The only alteration affecting the modification of existing contracts is that the notice of a modified contract must be sent to the UK e-notification service, replacing reference to the OJEU.
What are the consequences of an unlawful variation?
A contracting authority could find itself challenged and the varied contract may be set aside as ineffective.
How can we help?
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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