The Public Contracts Regulations 2015 encompassed a set of new rules brought about by a serious of European Court cases in relation to the changing of contracts. agendaNi summarises how these new rules are providing greater flexibility to modify contracts without triggering the need to re-tender.
While contracting parties outside of public procurement rules often enjoy the freedom to modify contracts, given that there is agreement, contracting authorities under public procurement rules previously operated under the assumption that any modification to an existing contract would trigger the requirement for a new competitive tender process.
Such a requirement is a security measure built in to public procurement rules to ensure that other economic operators are not disadvantaged in a lack of opportunity to compete for what is effectively, a different contract.
However, recognition exists that modification is sometimes necessary, for example, when price index changes occur, or technical difficulties interrupt a project. The new rules have sought to regulate circumstances where modifications to a contract while it is being carried out are possible.
Four main areas in which the new rules can apply are defined under the four categories of:
- any changes;
- major changes;
- minor changes; and
- corporate changes.
There are two main areas in which contracting authorities in public procurement can make changes. The first is around where procurement documents include an appropriate review clause. A clear, precise and unequivocal review clause, including for example, price revision clauses, can facilitate unlimited value of changes. However, the clause must ‘state the scope and nature of possible modifications or options as well as the conditions under which they will be used’. Changes can not alter the overall nature of the contract.
The second facilitates changes which are not deemed substantial. Substantial changes cover the likes of anything that makes a contract or framework agreement materially different in character; changes that would have attracted other suppliers or another tender being accepted; a tipping of the economic balance in favour of the supplier; extends the scope considerably or involves replacement of a supplier.
There are only two situations that major changes can be made without going back out to competition. In both cases special notice must be published in the Official Journal of the European Union. Additional requirements to a contract, in the area of services, works and goods, up to 50 per cent of the original contract value can be acquired from the existing supplier where a change of suppliers cannot be done for economic or technical reasons or wold cause significant inconvenience or supplication of costs.
There is also flexibility around unforeseen circumstances. If changes do not alter the overall nature of the contract, a modification of up to 50 per cent of the original contract value can be made where a “diligent contracting authority could not have foreseen” circumstances.
A change is considered 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 per cent of the initial contract value (or 15 per cent in the case of works);
- The change does not alter the overall nature of the contract or framework agreement.
The net cumulative value, if a series of changes is made, must be within these limits.
Where a takeover, merger, acquisition or insolvency takes place, a supplier can be replaced by another that meets the selection criteria without re-tendering. However, it must not involve any other substitutional changes to the contract and must not circumvent the regulations.