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Modifying public contracts – Staying alert to two regimes

In this Procurement UnpACked, we explore how contracting authorities should approach modifying public contracts following the Procurement Act 2023 (PA 2023) coming into force.

Two regimes - long live Regulation 72

The contract modification rules under the Public Contracts Regulations 2015 (PCR 2015) remain applicable to public contracts entered into before 24 February 2025 or where the procurement process started before this date. 

For public contracts awarded under procurement processes commenced on or after 24 February 2025, Sections 74-77 and Schedule 8 of the PA 2023 apply.

Given the volume of public contracts that still fall under the PCR 2015 and the flurry of activity on Find a Tender in the run up to 24 February, the Regulation 72, PCR 2015 regime for modifications is likely to be the law that most contracting authorities will refer to for some time.

It will be important when a modification arises to be alert as to which regime applies.

PA 2023 – covered procurement

The definition of ‘covered procurement’ under the PA 2023 includes management of public contracts. When considering modifications, contracting authorities must have regard to the objectives set out in Section 12 of the PA 2023 and the National Procurement Policy Statement (in force at the time). This regard will need to be evidenced in the decision making around the modification.

PA 2023 – the new rules regulating contract modifications

The Cabinet Office considers that the PA 2023 provides greater flexibility to modify public contracts but in exchange for much greater transparency.

The rules apply to all public contracts except light touch regime contracts, which can be modified freely. Whilst the rules do not – as general rule – apply to below threshold contracts they do apply to ‘convertible contracts’. These are any below threshold contracts that become public contracts because of the modification – i.e. they go above threshold. 

Modifications can be made to a public contract without the need for a new procurement process when one or more of the following are applicable:

  • there is a permitted modification under Schedule 8 – we discuss these further below; or
  • there is a non-substantial modification - modification is permitted if it does not: (a) increase or decrease the maximum term (on award) by more than 10%; (b) materially change the scope of the contract; or materially change the economic balance of the contract in favour of the supplier. This route adopts broadly the PCR 2015 approach to non-substantial modifications save that the reference to impact on the original procurement process has been removed; or
  • there is a below-threshold modification - modification is permitted if it does not: (a) increase or decrease the estimated value of the goods or services contract by more than 10%, or a works contract by more than 15%; (b) exceed the relevant PA 2023 threshold when aggregated with all other below threshold modifications; and (c) materially change the scope. Lastly, to use this route, the modification must not fall within using either the non-substantial modification or the permitted modifications routes. This route is equivalent to the de-minimis exemption under the PCR 2015. 

PA 2023 - what are the Schedule 8 permitted modifications?

The PA 2023 adopts the approach under the PCR 2015 of prescribing certain scenarios as permitted modifications. For non-defence public contracts, there are four permitted modifications that have been adapted (with some changes) from the PCR 2015 and two new permitted modifications. 

Where we refer to estimated value below, that is not the value at the time of the original procurement, but the estimated value before the modification.

Grounds retained from PCR 2015

Schedule 8 reference

Scope

Provided for in the contract

 

Modification is permitted when it is unambiguously provided for in both the contract awarded and the tender (or transparency) notice and the overall nature of the contract is unchanged. 

Unforeseeable circumstances

 

Modification is permitted if all of the following apply:

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

Additional goods, services or works

 

Modification is permitted where: 

  • additional supply of goods, services or works compared to what is already provided under the public contract is needed;
  • using a different supplier would result in goods, services or works that are different from or incompatible with those already provided;
  • the contracting authority considers the difference or incompatibility would result in both:
  • disproportionate technical difficulties for operation or maintenance, or another significant inconveniences; and
  • substantial duplicate costs. 

The modification must not increase the estimated value of the contract by more than 50%.

Transfer on corporate restructuring

 

Modification is permitted if the novation or assignment of the public contract to another supplier is required due to corporate restructuring or a similar circumstance. 

There is no reference to the scope of the types of corporate restructuring, for example whether it is due to insolvency or a merger. The explanatory memorandum to the PA 2023 states, ‘A corporate restructuring could include sale of a business as part of a planned strategy, or one that has been required following the insolvency of the supplier.'

No express conditions are imposed and there is no requirement (as under the PCR 2015) that the new contracting party meet the original selection criteria.

New grounds

Schedule 8 reference

Scope

Urgency and the protection of life, etc

 

Modification is permitted if its purpose can be achieved by a direct award in either of the following situations:

  • the award is strictly necessary for reasons of extreme and unavoidable urgency (not due to any act or omission of or foreseeable by the contracting authority) and therefore, the contract cannot be awarded using a competitive tendering procedure.
  • the direct award is justified in order to protect life, public order or safety in accordance with regulations made under section 42. The aim for this modification is to ensure procurements in an emergency event can be conducted quickly.

Materialisation of a known risk

 

A ‘known risk’ is a risk that the contracting authority considers could compromise the ability to satisfactorily perform the public contract but that could not, because of its nature, be addressed when contract was awarded. 

Modification is permitted if the following conditions are satisfied:

  • a known risk was identified in the tender or transparency notice including that it is possible that it may lead to modification;
  • the contracting authority considers that:
  • the known risk has materialised and this is not due to an act/omission of the contracting authority or the supplier;
  • the known risk prevents the public contract from being delivered to the satisfaction of the contracting authority; 
  • the modification goes no further than to remedy the issue; and
  • it is not in the public interest to make a separate award instead of a modification. Here, the contracting authority must consider whether a new contract could provide more value for money, and may consider technical and operational matters.
  • The modification does not increase the estimated value of the contract by more than 50%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PA 2023 - transparency

In most cases, before a contracting authority can modify the public contract it must publish a contract change notice and may apply a voluntary standstill period (which cannot be less than 8 working days). Exceptions to the need to publish a contract change notice include modifications to light touch regime contracts and certain smaller changes.

Where the modification results in a public contract with an estimated value of over £5 million and a contract change notice had to be published, the modified contract or the modification itself must be published within 90 days of the modification. 

How different will it be compared to the PCR 2015?

Many of the themes under the PA 2023 are the same as under the PCR 2015, but there are some important changes. Alongside the new permitted modifications, the increased transparency around modifications may well see a change in risk appetite in some contracting authorities when it comes to modifications. This is an area where we can foresee a good deal of case law arising.

For more information

For more information on the PA 2023 and the PCR 2015, please contact Alex Lawrence.

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Tags

procurement, procurement act 2023, modifications, health and social care, housing, local government