Changes to contracts


What is this about?

A series of European Court cases (including pressetext) developed new rules on changes to contracts (e.g. when changes are ‘material' enough to amount to a new contract which requires re-tendering).
 
The regulations incorporate those rules. Certain points have been clarified and developed further.

Councils can make use of these new rules on ‘modifications' to manage changes to contracts. In particular, councils can implement changes with greater confidence to secure savings or to get better outcomes.

This is a complex area where legal advice may be required.

What is new?

The new rules cover four situations:

  • Any changes
  • Major changes
  • Minor changes
  • Corporate changes.

These rules that apply in these four situations are explained in some detail below as councils are not familiar with them from the old regulations.

Note that changes to existing contracts and framework agreements are also covered (i.e. those awarded before the PCR 2015 came into force). The important date is the date of the change not the contract award date.

Any changes

Using a review clause

Where the procurement documents include an appropriate review clause (including price revision clauses or options) changes can be made without re-tendering (i.e. the need for change is foreseen). There is no limit on the value of changes that can be made in this situation.

The exercise of a clause like this can involve the substitution of a supplier.

The drafting of the review clause must be ‘clear, precise and unequivocal' and the clause must ‘state the scope and nature of possible modifications or options as well as the conditions under which they will be used'. The changes cannot alter the ‘overall nature' of the contract or framework agreement.

Changes which are not ‘substantial'

There is a second situation in which changes of any value can be made. This is where the changes do not count as being ‘substantial'.

Under the regulations a change counts as being ‘substantial' if it does any of the following:

  • Makes the contract or framework agreement ‘materially different in character'
  • Makes changes which would have led to other suppliers being attracted to bid or being selected or to another tender being accepted.
  • Changes the ‘economic balance' in favour of the supplier (beyond anything provided for in the contract or framework agreement).
  • Extends the scope of the contract or framework agreement considerably.  
  • Involves replacement of the supplier (apart from where a review clause is being exercised or there has been a corporate change, see below).

Councils can make a series of changes in either of the two ‘any change' situations described above as long as the aim is not to circumvent the regulations. 

Major changes

There are two situations in which major changes can made without going back out to competition: additional requirements and unforeseen circumstances.

In both these cases a special type of notice must be published in OJEU: ‘Notice of modification of a contract during its term'.

Additional requirements

Additional services, works or goods up to 50% of the original contract value can be acquired from the existing supplier where changing suppliers -

  • cannot be done for ‘economic or technical reasons' such as non-interchangeability or non-interoperability with existing equipment, services or installations, or
  • would cause ‘significant inconvenience or substantial duplication of costs'.

Unforeseen circumstances

A modification up to 50% of the original contract value can also be made in circumstances which ‘a diligent contracting authority could not have foreseen' provided that the changes do not alter the overall nature of the contract.

This is most likely to apply to longer contracts.

In both of the two ‘major change' situations mentioned above, the 50% limit applies to each change that is made (not cumulatively), provided that the changes are not aimed at avoiding the regulations.

The reference figure for calculating the percentages is the updated contract value as varied by any indexation clause.

Under the old rules, these ‘major change' situations used to be circumstances in which ‘negotiation without prior advertising' was permitted. That is no longer the case (see procurement routes).  

Minor changes
Re-tendering is not required for minor changes. A change counts as being ‘minor' if all of the following apply:

  • The value of the change is below the relevant EU threshold.
  • The value of the change is below 10% of the initial contract value (or 15% in the case of works).
  • The change does not alter the overall nature of the contract or framework agreement.

If, over time, a series of changes is made, the net cumulative value of all the changes must be within these limits.

If the contract includes an indexation clause the updated value (i.e. as varied by that clause) is the value which must be used when calculating the percentages.

Corporate changes
In cases of corporate restructuring, a supplier can be replaced (‘universal or partial succession') by another supplier that meets the council's selection criteria without re-tendering.

Corporate restructuring includes takeover, merger, acquisition and insolvency.

This enables the substitution of a supplier. But it must not involve any other substantial changes to the contract and it must not be aimed at circumventing the regulations.

This situation includes use of ‘step in' rights under a PFI/PF2 agreement.