Modifying a public contract under the Procurement Act 2023

The Procurement Act 2023 (the “Act”), which is now expected to come into force on 24 February 2025, will introduce a number of changes to the modifications which may lawfully be made to public contracts without running a new procurement process. Those changes include:

  1. updates to and clarification of the criteria for the existing situations where modifications are permitted under regulation 72 of the Public Contracts Regulations 2015 (“PCR 2015”);
  2. the introduction of two new sets of circumstances where modification will be permitted in cases of emergency and where a known risk has materialised;
  3. an extension of the requirement to publish notice of contract changes, so that the publication of notices will be required for most modifications; and
  4. added clarity that the permitted modification provisions apply to contracts which will become a public contract as a result of the proposed modification.

An overview of the new permitted modifications regime under the Act is set out below. Utilities and defence contracts are outside the scope of this note.

Updates to existing permitted modifications

The Act broadly preserves the sets of circumstances where contracting authorities will be permitted to modify public contracts without running a new procurement procedure which appeared in regulation 72 of the PCR 2015. However, the specific criteria to be satisfied for each scenario have been updated and refined which will mean that differences in the application of the rules will arise from the current position under the PCR 2015.

The rules in relation to Light Touch Contracts have been considerably loosened.

The updated circumstances where a contracting authority may modify a public contract or convertible contract without running a new procurement under the Act will be:

Express review clauses

(paragraph 1 of Schedule 8 of the Act)

 A modification will be permitted where both of the following criteria are satisfied:

  1. the possibility of the modification is unambiguously provided for in both (i) the contract as awarded and (ii) the tender or transparency notice for the award of that contract; and
  2. the modification would not change the overall nature of the contract.
Additional works, services and supplies by the original contractor

(paragraph 8 of Schedule 8 of the Act)

 A modification will be permitted where all of the following criteria are satisfied:

  1. the modification provides for the supply of goods, services or works in addition to the goods, services or works already provided for in the contract;
  2. using a different supplier would result in the supply of goods, services or works that are different from, or incompatible with, those already provided for in the contract;
  3. the contracting authority considers that the difference or incompatibility would result in both:
    a. disproportionate technical difficulties in operation or maintenance or other significant inconvenience; and
    b. the substantial duplication of costs for the authority; and
  4. the modification would not increase the estimated value of the contract by more than 50%
Unforeseen circumstances

(paragraph 4 of Schedule 8 of the Act)

 A modification will be permitted where all of the following criteria are satisfied:

  1. the circumstances giving rise to the modification could not reasonably have been foreseen by the contracting authority before the award of the contract;
  2. the modification would not change the overall nature of the contract; and
  3. the modification would not increase the estimated value of the contract by more than 50%.
Replacement of a contractor

(paragraph 9 of Schedule 8 of the Act)

 Novation or assignment to a supplier that is not an excluded supplier will be permitted if it is required following a corporate restructuring or similar circumstance.
Non-substantial modifications

(section 74(1) and (3) of the Act)

 A modification will be permitted where it will not:

  1. increase or decrease the term of the contract by more than 10 per cent of the maximum term provided for on award;
  2. materially change the scope of the contract (i.e. provide for the supply of goods, services or works of a kind not already provided for in the contract); or
  3. materially change the economic balance of the contract in favour of the supplier.
Below threshold modifications

(section 74(1) and (4) of the Act)

 A modification will be permitted where all of the following criteria are satisfied:

 

  1. it would not, itself, increase or decrease the estimated value of the contract by more than:
    (i) 10% in the case of a contract for goods or services; or
    (ii) 15% in the case of a contract for works;
  2. the aggregated value of below-threshold modifications (i.e. the amount of the estimated value of the contract after modification that is attributable to below-threshold modifications) would be less than the threshold amount for the type of contract;
  3. it would not materially change the scope of the contract (i.e. provide for the supply of goods, services or works of a kind not already provided for in the contract); and
  4. it is not one of the permitted modifications listed in Schedule 8 of the Act or a substantial modification, as defined in section 74(3) of the Act.
Light touch contracts

(section 74(2) of the Act)

 A modification will be permitted to a light touch contract, provided that the contracting authority has regard to the procurement objectives in section 12 of the Act. As in the current regulations, section 9 of the Act defines light touch contracts as contracts wholly or mainly for services falling within a list of CPV codes, which are specified in Schedule 1 to the Procurement Regulations 2024.

 

It is worth noting that the calculation of the 50% thresholds above will change to be 50% of the value of the contract at the time of the variation, not the original contract value.

New permitted modifications

The Act introduces two new sets of circumstances where a contracting authority may modify a public contract or convertible contract:

Emergencies

(paragraph 2 of Schedule 8 of the Act)

 A modification will be permitted where both of the following criteria are satisfied:

  1. the modification could otherwise by carried out by direct award under section 41 of the Act; and
  2. that award could be made:
    a. under paragraph 13 of Schedule 5 (extreme and unavoidable urgency); or
    b. in accordance with secondary legislation made under section 42 (direct award to protect life, etc.).
Materialisation of a known risk

(paragraph 5 of Schedule 8 of the Act)

 A modification will be permitted where both of the following criteria are satisfied:

  1. the contracting authority considers that:
    a. a “known risk” has materialised otherwise than as a result of any act or omission of the contracting authority or the supplier
    b. because of that fact, the contract cannot be performed to the satisfaction of the contracting authority;
    c. the modification goes no further than necessary to remedy that fact; and
    d. awarding a further contract under Part 3 of the Act instead of modifying the contract would not be in the public interest in the circumstances (and in considering this question, the contracting authority (i) must consider whether a new contract could provide more value for money and (ii) may consider technical and operational matters).
  2. the modification would not increase the estimated value of the contract by more than 50% ignoring, for the purpose of estimating the value of the contract, the fact that the risk has materialised.

For the purposes of these provisions, a “known risk” is a risk that:

  1. the contracting authority considered could jeopardise the satisfactory performance of the contract but because of its nature, could not be addressed in the contract as awarded; and
  2. was identified in the tender or transparency notice for award of the contract, including by reference to it meeting the description in paragraph 5(1)(a) of Schedule 8 and the possibility of modification under paragraph 5 of Schedule 8.

Further provisions

The Act clarifies in section 74(1) that the provisions relating to modification of public contracts will also apply to contracts that, as a result of the modification, will become a public contract (called a “convertible contract” in the Act). The explanatory notes to the Act indicate that this is likely to capture below-threshold contracts where the proposed modification will increase the value of the contract above the threshold.

The Act also contains provisions to prevent contracting authorities from artificially splitting up modifications to rely on the provisions of section 74. Under section 74(7) and section 74(8) of the Act, where a contracting authority considers that a modification could reasonably have been made together with another modification and that single modification would not have been permitted, the later modification will not be permitted under section 74.

Except where a modification is permitted under paragraph 9 of Schedule 8 following corporate restructuring, contracting authorities will not be permitted to modify a public contract or convertible contract to change the supplier (section 74(9) of the Act).

Transparency requirements

At present under the PCR 2015, contracting authorities are generally only required to submit a notice to the Find a Tender service where they make modifications relating to additional works or services by the original contractor or in unforeseen circumstances. The requirements for contracting authorities to publish contract change notices will be much broader under the new Act.

Before modifying a public contract or a convertible contract, a contracting authority will be required to publish a contract change notice on the central digital platform under section 75 of the Act.

There will be limited exceptions to this rule. Unless the modification is a change of supplier following corporate restructuring under paragraph 9 of Schedule 8 of the Act, a contracting authority will not be required to publish a contract change notice where:

  1. the contract is a Light Touch Contract; or
  2. the modification increases or decreases the estimated value of the contract by 10% or less in the case of a contract for goods or services or 15% or less in the case of a contract for works; or
  3. the modification increases or decreases the term of the contract by 10% or less of the maximum term provided for on award.

Where a contracting authority is required to publish a contract notice relating to a modification which modifies or results in a public contract with an estimated value of more than £5 million, the contracting authority will also be required to publish a copy of the contract as modified or the modification before the end of the period of 90 days beginning with the day on which the modification is made (section 77 of the Act).

Under section 76 of the Act, contracting authorities may adopt a voluntary standstill period of not less than eight working days beginning on the day on which the contract change notice is published. It is understood that this is intended to provide contracting authorities with greater certainty and confidence in proceeding with a modification once the standstill period has elapsed without any challenge being received.

Commencement

These changes will not affect contracts which were awarded under the PCR 2015 (or which were called off from a framework or dynamic purchasing system established under the PCR 2015) and those contracts will continue to be managed in accordance with the current legislation. For example, where a contract was awarded under the PCR 2015, contracting authorities will need to comply with regulation 72 of the PCR 2015 when modifying that contract.

How we can help

Our specialist procurement team is presently assisting a number of contracting authorities who are reviewing and updating their procurement processes and documents in readiness for implementation of the  Act. If you have any queries regarding the impact of the Act on your processes and standard documents, please do not hesitate to contact our specialist procurement team.

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