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How moving the goalposts mid-contract could lead to an own goal

Tuesday May 26th, 2015

Your company’s contract to supply street lighting to the local authority is at its halfway point. New technology is now available which means you could provide the local authority with a product which is far superior in terms of energy efficiency but at considerably higher cost to the local authority. Even if the local authority had the budget to agree to this, would such a contract modification be permissible under public procurement rules?

Jill Fryer

Jill Fryer

Material changes – rules of the game
Circumstances and economics can change quickly and there are numerous reasons why one or both parties may want to amend the terms of a public contract during its term. The problem is that if such a change is “material”, it can be construed as being so significant as to effectively constitute the award of a new contract.

If the public body fails to comply with the procurement rules in respect of that new contract award, the public body will be deemed to have illegally awarded a contract, leaving itself exposed to challenge for breach of the procurement rules. And that is not just a concern for the public body – the contractor which agrees to such a modification could find the modified contract ineffective.

Case-law, particularly the Pressetext case, gives some guidance as to what constitutes a material change of contract. The new EU Directive, adopted in 2014, sought to codify the case law and set out new rules on when modification will trigger a requirement to run a new procurement procedure. The Directive has been transposed into the Public Contracts Regulations 2015 (which apply in respect of England, Wales and Northern Ireland) and is expected to be transposed into Scottish Regulations by the end of 2015.

Getting your tactics right at the start
The Directive sets out various circumstances in which contracts may be modified without a new procurement procedure. One circumstance of particular importance to procurement practitioners is “where the modifications, irrespective of their monetary value, have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, which may include price revision clauses, or options”.

This highlights the importance of thinking strategically and taking a long-term view at the outset of a procurement process, to ensure that the contractual conditions provide as far as possible and reasonable for the various contingencies and permutations of the local authority’s commercial requirement over the term of the contract.

Even if a modification was not provided for in the original procurement documents, it may still be permitted e.g. if it is of relatively small financial value; in unforeseen circumstances; where additional works are necessary and cannot be provided by another contractor; or where there has been replacement of contractor due to restructuring, insolvency etc.

Expressly providing for modification in the original procurement documents is in most cases preferable, however, and due attention should therefore be paid to contract conditions in order to allow appropriate flexibility and to minimise the risk of future procurement challenges.

 

Jill is an associate with Harper Macleod LLP and can be contacted at jill.fryer@harpermacleod.co.uk

 

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Gov Opps’ training partner, PASS (Procurement Advice Support Service) runs relevant procurement training events for the public and private sector. To view the brand new schedule of events, click HERE.

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