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Contract Changes under the Procurement Act 2023
Contract changes under the Procurement Act 2023.
FAQs
- You mentioned in a previous 5 in 25 webinar on contract modifications that permitted changes under Regulations 72(1)(b) and (c) PCR 2015 are not cumulative, in terms of assessing the value of the change against the 50% value cap. However, in the eLearning training it says "Under PCR 2015, the % value cap that applied to each modification was calculated cumulatively". Are these contradictory positions?
This is an area where we hope that forthcoming guidance on modifications will assist. Our view is as follows.
Under Regulations 72(1)(b) and (c) PCR 2015, the 50% ‘cap’ applies to each modification. See Regulation 72(2) PCR 2015, which states that the following wording used in those two exemptions - “provided that any increase in price does not exceed 50% of the value of the original contract” - applies to the value of “each modification” where several successful modifications are made. There is a provision at Regulation 72(2)(b) which does prohibit successive modifications where they are aimed at circumventing the rules.
The drafting in the Act arrives at the same position via a different route. Section 74(1) states (inter alia) that a modification can be made if it is a permitted modification under Schedule 8. Each modification is assessed against the schedule 8 “grounds” on a standalone basis, not cumulatively. The only exception is set out at section 74(7) and (8), which prevents modifications being “separated out” when reasonably they should be treated as one modification; if this is the case, then the modifications need to be taken together in the round and section 74(1) then applied, to test whether the modifications may be made.
(For completeness, although not directly relevant to the question, we note that both the PCR 2015 and the Act do require authorities to aggregate the value of modifications made in relation to Regulation 72(1)(f) PCR 2015 and their broad equivalent – “below-threshold modifications” – under section 74(4) of the Act). - Will the 50% cap being assessed by reference to contract value immediately prior to making the modification (i.e. not by reference to original value) also apply to the Provider Selection Regime (“PSR”) for permitted modifications to NHS health care contracts?
The 50% cap concept is not included in the separate PSR regime on contract modifications. The NHS England PSR flowchart and contract modification process map provide more detail and guidance on this point.
- To what extent can an existing contract be modified to allow for a reduced service to allow cost reduction negotiations to take place, during the life of the contract?
Assuming that the reduction in scope is not already “unambiguously provided for in the contract” under paragraph 1 of schedule 8 then you would need to apply the remainder of section 74(1) of the Act to test if the modification could be made.
This would be possible if the modification (a) was a “permitted” modification under one of the other headings in schedule 8; (b) was a “below-threshold” modification; or (c) was not a “substantial modification”.
Note that the fact that the modification is a reduction in scope, value or term does not automatically make it permitted. The definitions of “below threshold” and “substantial” modifications both make it clear that reductions (a) in value of more than 10%(services/supplies) or 15% (works); or (b) in term of more than 10%, are both prohibited modifications (unless a schedule 8 permitted ground can be applied).
- In relation to schedule 8, paragraph 1 (Provided for in the contract) and paragraph 5 (Materialisation of a known risk); given that both of these safe-harbours are only available where a tender notice or transparency notice has been published for the respective contract, do would they be available in respect of a call-off contract from a framework?
This is a good question! On a strict interpretation of paragraph 1 and paragraph 8 these grounds would not be available in relation to a call off contract, because there would be no tender or transparency notice in this regard. We await the guidance on contract modifications on this point.
- If a modification increases the value of a contract to over £5m - do you need to start to publish Contract Details Notices, Contract Performance Notices and copies of the modified contract?
In short, “yes” to all three. Section 52 on Key Performance Indicators states that, where an authority “enters into” a public contract with an estimated value of more than £5 million, then three KPIs must be set and a Contract Performance Notice published accordingly. We await guidance on whether the signing of a contract variation can amount to “entering into” a public contract for these purposes – our view is that there is certainly an argument that it does.
Contract Details Notices (section 52 (and section 87 in relation to below-threshold contracts)) are required for all contract awards over the £12,000/£30,000 thresholds set out at section 87(4)).
Further, section 52 states that, where an authority “enters into” a public contract with an estimated value of more than £5 million, it must also publish a copy of the contract. Again, we await guidance on whether “enters into” can include the signing of a contract variation for these purposes. In any event, contract publication would be required in this scenario by virtue of section 77 (see next).
Section 77 states that if a contracting authority makes a "qualifying modification" - where a Contract Change Notice is required and the resulting contract value is over £5 million - the contracting authority must publish either a copy of the contract as modified (or the modification itself).
- How many days before making the change does the Contract Change Notice need to be submitted?
The Act is silent on this point and in principle (and subject to anything to contrary stated in forthcoming official guidance) the modification could be made immediately following publication of the Contract Change Notice. - Would a Contract Change Notice be required if the change is de minimis but still brings it over threshold?
Regardless of whether the contract value was already over threshold prior to making to modification or whether the modification brings the value over the threshold for the first time, there is no requirement to publish a Contract Change Notice if the value of the change is “de minimis” as follows:
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- the modification increases or decreases the estimated value of the contract by— (i) in the case of a contract for goods or services, 10% or less, (ii) in the case of a contract for works, 15% or less; or
- the modification increases or decreases the term of the contract by 10% or less of the maximum term provided for on award, unless the modification is a permitted modification under paragraph 9 of Schedule 8 (novation or assignment on corporate restructuring).
- Is there anything to prevent a contract continually being changed & no Contract Change Notice being published, if each time the change is within the permitted “de minimis”?
This “mischief” is addressed at section 75(4). This states that where (a) a modification is de minimis under section 75(2) (which normally means that a Contract Change Notice is not required); but (2) a contracting authority should reasonably consider that the modification could have been made together with an earlier modification of the contract; then (c) a Contract Change Notice should still be published. This section would prevent contract changes being disaggregated in order to fall under the de minimis thresholds. - For Works contracts (e.g. Standard Forms such as JCT) which foresee in the T’s & C’s the likelihood of contract variations, will a Contract Change Notice be required each time a Contract Administrator's Instruction is issued by the Contract Administrator (and in advance with voluntary standstill)? Will the >15% rule apply? If so, do you think there will be a need for modification of the contract at tender stage to build in this requirement for Act compliance?
As above, before modifying a public contract or a convertible contract (section 74(1)), a contracting authority must publish a Contract Change Notice for each modification. This is the case even where the type of permitted modification is one that is already “unambiguously provided for in the contract” – the ground upon the variations contemplated by standard forms just as JCT may well rely. As above, there is no requirement to publish a Contract Change notice where the value change is 15% or less in the case of a works contract, or if the modification is an increase or reduction in term of less than 10%. We assume that standard form contracts such as JCT will be reviewed to harmonize them for use under the Act, where required.
- You mentioned that section 75 of the Act does not apply to Light Touch Regime contracts even when above threshold. Is that also true of section 74?
Section 74(2) allows the modification of light touch contracts, without having to apply the other provisions of the section. The modification of a light touch contract does not require the publication of a Contract Change Notice (section 75(6)). Light touch contracts may therefore be modified under the Act in any circumstances, provided contracting authorities have regard to the procurement objectives in section 12.
- If you got a challenge when publishing a Contract Change Notice - what would be the process to continue?
Assuming that you elected to hold a voluntary standstill period, and a claim was brought within that standstill period, then the automatic suspension would come into effect, preventing the signature of the variation. The authority would then need to apply to the court to have the suspension of the right to vary the contract lifted. The court would apply the test set out at section 102(2) to make this judgment. The original contract (i.e. the pre-variation contract) would continue unaffected.
- What is the maximum term of a convertible contract?
A convertible contract is a below-threshold contract that becomes a fully regulated public contract following of a modification. Following the modification of the convertible contract, the contract is subject to the provisions in the Act that govern public contracts, rather than the provisions specific to below-threshold contracts set out in Part 6. As with the PCR 2015, the Act is silent on any maximum term for public contracts and convertible contracts (although there are of course limits on the maximum term permitted for framework agreements).