Procurement in a Nutshell: Procurement Act 2023 – Modifying a Contract

On 26^th October 2023 the Procurement Bill received Royal Assent and is now expected to come into force on 28th October 2024.

The Act will, in particular, revoke the following:

• Public Contracts Regulations 2015 (PCR)
• Concession Contracts Regulations 2016
• Utilities Contracts Regulations 2016

What’s new?

The Act introduces the concept of a “convertible contract”. This is a contract which is not currently a public contact but will, if modified, become a public contract.

Under section 74, a contracting authority may modify a public contract, or a contract which will (as a result of the modification) become a public contract if the modification:

• Is a “permitted modification” listed in Schedule 8;
• Is not a substantial modification; or
• Is a below-threshold modification.

A “substantial modification” is one which would:

• Increase or decrease the term of the contract by more than 10% of the maximum term provided for on award;
• Materially change to scope of the contract; or
• Materially change the economic balance of the contract in favour of the supplier.

The list of permitted modifications in Schedule 8 includes

Provided for in the contract

• Where the possibility of a modification is unambiguously provided for in:
  • The contract as awarded, and
  • The Tender or Transparency Notice for that contract, and
  • It would not change the overall nature of that contract.

Urgency and the protection of life

• Where the modification could be achieved by the direct award of a contract by reference to:
  • The provision for extreme and unavoidable urgency under Schedule 5, or
  • Regulations made by a Minister to protect life under Section 42.

Unforeseeable circumstances

• Where the circumstances could not reasonably have been foreseen by the contracting authority before contract award and:
  • The change would not alter the overall nature of the contract, and
  • The estimated value would not increase by more than 50%.

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Materialisation of a known risk

• Where the contracting authority considers that a known risk has materialised (which is not due to any act or omission of any party), and as a result the contact cannot be performed satisfactorily
  • The modification goes no further than to remedy that fact and awarding a new contract through a competition would not be in the public interest
  • The estimated value would not increase by more than 50%.
• In order to qualify as a ‘known risk’, such a risk must have bene identified in the Tender or Transparency Notice.

Additional goods, services or works

• Where the modification is for additional goods, services or works, but using a different supplier would result in
  • A supply that is different from or incompatible with those under the existing contract, and
  • The contacting authority considers that the difference or incompatibility would result in disproportionate technical difficulties and a substantial duplication of costs, and
  • The estimated value would not increase by more than 50%.

In most cases, before modifying a public contract or a convertible contract, a contracting authority must publish a Contract Change Notice (Section 75) which may impose a voluntary standstill period (Section 76). Contracting authorities should note that the standstill period (should they choose to impose one) cannot be less than 8 working days.

Within 90 days of executing the modification, the contracting authority must publish a copy of the contract as modified or the modification itself if the publication of a Contract Change Notice is required and the estimated value of the contract is more than £5 million.

What’s changed?

While the provisions relating to the modification of a contract are broadly similar to that under the PCR, contracting authorities should note the introduction of the following when executing a change:

• The additional transparency requirements in relation to the obligation to publish a Contract Change Notice in most circumstances following a modification;
• The new ‘permitted modifications’ including the materialisation of a known risk and the need to project life; and
• The introduction of a ‘convertible contract’ which will now fall within the scope of the Act.

What does this mean?

Contracting authorities should continue to exercise caution when exercising their ability to modify a contract as although the Act introduces new ‘permitted modifications’, it is our view that such circumstances currently lack clarity.

As stated in our previous Nutshells, we would also advise that contracting authorities prepare for the enhanced administrative burden created by the Act in relation to the notice requirements.

For further information please contact Melanie Pears or Tim Care in our Public Sector Team.