It is not surprising that parties to a contract or framework agreement occasionally wish to modify the terms which they originally agreed.
Common situations can include the need to change contractor as a result of a company restructuring, the wish to drive efficiency savings by purchasing a different product or amending payment terms, or the need to purchase a new piece of equipment that was not initially envisaged as part of a wider project. These are just examples and you may have come across many more in your different practice areas.
Article 72/Regulation 72 set out six circumstances in which you can make changes (modifications) to a contract or a framework agreement . In this Byte we refer to these as the six “permitted changes”. If you wish to modify an existing contract, you will need to consider whether it falls within one or more of the six permitted changes. If it does, you can make the changes without running a new procurement.
The six permitted changes are summarised below. Two of the permitted changes (numbers 2 and 3) will look familiar as quite similar provisions exist under the current rules on grounds for award of a contract by negotiation without prior publication of a contract notice. Other permitted changes reflect principles which have been developed in EU case law.
The six permitted changes - contracts and framework agreements
Permitted change 1: Modifications that are clearly provided for in the original procurement and contract documents – Article 72(1)(a)/Regulation 72(1)(a)
If the original procurement documents are clear that certain modifications may be made, this may avoid the need to run a new procurement. The modifications must have been provided for in "clear, precise and unequivocal review clauses". The scope and nature of the possible modifications must be clear as must the conditions under which the review clauses can be used.
A particular example given in the Regulations is of a price revision clause which may, for example, take account of changes in inflation. The modifications must not alter the overall nature of the contract. This is worth bearing in mind when drafting your contracts. If there is a particular area that may be subject to change, consider whether you can deal with it when drafting your contract documents and in the call for competition.
Permitted change 2: Necessary modifications where a change of contractor cannot be made – Article 72(1)(b)/Regulation 72(1)(b)
This can be used where it becomes necessary to purchase new works, services or supplies from the original contractor and that purchase was not included in the original procurement. This permitted change can only be relied on where a change of contractor:
- cannot be made for economic or technical reasons; and
- would cause significant inconvenience or substantial duplication of cost for the contracting authority.
In addition, the change will only be allowed if it does not result in an increase in price of more than 50% of the value of the original contract.
A contracting authority could, for example, rely on this clause to purchase a piece of software from its IT contractor where that specific software is required to interface with an existing system provided by the IT contractor. You must take care to ensure that the purchase is genuinely necessary.
It is possible to make several modifications relying on permitted change 2. The 50% increase in price limit applies to each separate modification. There is a "good faith" element in that this must not be used as a means of circumventing the procurement rules (Regulation 72(2)(b)).
If a contracting authority relies on permitted change 2 it must publish a notice in the OJEU saying that it has done so (Regulation 72(3)) .
Permitted change 3: Modifications to deal with unforeseen circumstances – Article 72(1)(c)/Regulation 72(1)(c)
If an event or set of circumstances occurs which a contracting authority acting "diligently" could not have foreseen, it is possible to modify the contract without procurement. That is a permitted change where the modification does not alter the overall nature of the contract and does not result in an increase in price of more than 50% of the value of the original contract.
For example, a contracting authority could rely on this if it has to move a service unexpectedly due to a finding of asbestos in one of its buildings. It may need to pay the contractor which already provides the service an additional amount to facilitate the move to a different location. It could rely on permitted change 3 to do so.
It is possible to make several modifications relying on permitted change 3. The 50% increase in price limit applies to each separate modification. There is a "good faith" element in that this must not be used as a means of circumventing the procurement rules (Regulation 72(2)(b)).
If a contracting authority relies on permitted change 3 it must publish a notice in the OJEU saying that it has done so (Regulation 72(3)).
Permitted change 4: Modifications to deal with a new contractor replacing the original contractor – Article 72(1)(d)
Regulation 72(1)(d) refers to two circumstances where a new contractor may replace the original contractor and that change is a permitted change:
- where the change is envisaged in the contract or procurement documents and where the conditions in permitted change 4 are met; or
- where the replacement is as a result of "corporate restructuring, including takeover, merger, acquisition or insolvency". This is provided that:
- the new contractor meets the pre-qualification criteria; and
- the change in contractor must not result in other substantial amendments to the contract.
The "good faith" requirement applies. Permitted change 4 must not be used to circumvent procurement rules.
Permitted change 5: Modifications that are "not substantial" – Article 72(1)(e) and 72(4)/Regulation 72(1)(e) and 72(8)
Under permitted change 5, any modifications which are not substantial can be made without running a procurement process.
The structure of permitted change 5 is slightly different in the Directive and the Regulations. Regulation 72(8) sets out 5 circumstances in which modifications will always be considered to be substantial and so require a new procurement. These are:
- modification renders the contract materially different in character from the one concluded;
- modifications that could have resulted in a different outcome in the procurement; i.e. which would have allowed for the admission of other candidates, acceptance of other tenders, or attracted additional participants in the procedure;
- modifications which shift the economic balance of the contract in favour of the contractor. For example, a price increase could fall into this category;
- modifications which extend the scope of the contract considerably. For example, a substantial increase in the duration or extension of the subject matter of the contract could fall into this categorr;
- where a new contractor replaces the original contractor, other than where this is allowed under permitted change 4.
Permitted change 6: Low value modifications – Article 72(2)/Regulations 72(1)(f), 72(5) & 72(6)
If the value attributable to the modification:
- falls below the relevant procurement threshold currently £172,514/£111,676 for supplies and services and £4,322,012 for works; and
- is less than 10% of the initial contract value for supplies and services contracts or 15% of the initial contract value for a works contract
then permitted change 6 applies.
The modification must not alter the overall nature of the contract.
It is possible to make more than one modification to a contract under permitted change 6, however the cumulative value of the modifications must not exceed the relevant procurement threshold.