Procurement in a Nutshell – variations to contracts

The full regulations are available in full here.

To save you time and to help all practitioners, each week we will issue succinct notes on key changes.

What’s New?
Regulation 72(1) sets out the 6 situations in which modifications are permitted:

1. Where the modification, irrespective of value, is provided for in the initial procurement documents under a clear, precise and unequivocal review clause, so long as those modifications provided for do not alter the overall nature of the contract.

2. Where the modification is for additional works/services/supplies by the original contractor that have become necessary and where a change of contractor cannot be made for economic or technical reasons or without significant cost or inconvenience to the CA. This is still only permitted if the increase in price does not exceed 50% of the original contract value.

3. Where the need for the modification could not have been foreseen by the diligent CA and the modification does not alter the overall nature of the contract. Again this is still only permitted if the increase in price does not exceed 50% of the original contract value.

4. Where a new contractor replaces the original one as a consequence of a review clause or where the new contractor is a successor to the old one because of insolvency, takeover, merger etc.

5. Where the modifications are not substantial, in accordance with the definition in Regulation 72(8). Under that paragraph, a modification is substantial if:

• it renders the contract materially different to the original; or
• it introduces conditions that would have (a) allowed for the admission of other candidates for the tender or  (b) for the acceptance of a tender other than that accepted or (c) would have attracted additional participants in the procurement; or
• the economic balance is changed in favour of the contractor; or
• the scope of the contract is extended considerably; or
• a new contractor replaces the original one in cases other than those set out above.

6. Where the value of the modification is below the applicable procurement threshold in Regulation 5 and below 10% of the initial contract value for services and supply contracts or 15% for works contracts. The modification must also not alter the overall nature of the contract. CAs should be aware that, for successive modifications, their value is to be calculated cumulatively.

Where none of the circumstances above apply to a proposed modification, a new procurement procedure will be required.

The rules on variations will only apply to contracts awarded after 26 February 2015 unless the procurement process began prior to that date.

Why is it important?
The Presstext case in 2009 set out the principles regarding variations to existing contracts under the Procurement Regulations.

It gave guidance to CAs on the circumstances in which a variation would constitute a material difference, such that it should be dealt with by way of a new procurement exercise. Regulation 72 codified these principles for the first time within the Public Contract Regulations themselves.

CAs should familiarise themselves with the circumstances in which variations will and will not require a new procedure and should think about including “a clear, precise and unequivocal review clause” in their contracts where they anticipate certain amendments will be required.

How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.