All change? How to modify a public contract without risk

Public procurement in Ireland is governed by a complex framework that demands a careful balancing act between compliance and flexibility, write Beauchamps’ Áine Smith, and Cian Clifford.

One of the most challenging areas for authorities in recent years has been managing changes to existing contracts. Often, such bodies may not be alive to the fact that public procurement law continues to “bite” long after a contract is awarded. Getting a contract awarded in compliance with the rules can be challenging enough in the first place; the need to then keep an eye on how a contract evolves, particularly long-term contracts or those for complex services, is an additional burden, often complicated by changes over time to personnel tasked with managing those contracts.

Regulation 72 of the European Union (Award of Public Authority Contracts) Regulations 2016 sets out the limited circumstances under which contracts may be lawfully amended without the need for a new procurement. A misstep in applying these provisions can expose an authority to legal challenge, audit scrutiny, and financial penalties, not to mention significant reputational damage and trust in the authority’s ability to manage public funds being seriously undermined. So what are the rules around contract modifications and when are changes permitted?

1. Modifications provided for in initial procurement documents: Changes to public contracts are permitted where they are provided for in clear, precise and unequivocal terms in the original procurement documents. This sounds straightforward, but can be difficult to achieve in practice, necessitating the ability to clearly forecast and legislate for future needs. The original procurement documents must specify the nature and scope of the changes and conditions under which they may be used, and any proposed change must not alter the overall nature of the contract. In practice, it is rare to come across a contract which meets the required standards.

2. Additional works, supplies or services: In summary, modifications are allowed where additional works or services are necessary, and a change of contractor cannot be made for economic or technical reasons. A change made under this provision must not exceed 50 per cent of the original contract value; if multiple modifications are made, the 50 per cent threshold applies to each one. A modification notice must be published in the Official Journal, notifying the market of the change. This increases the risk profile, as the notice can be seen as an invitation to challenge.

3. Unforeseen circumstances: Changes necessitated by unforeseen circumstances not attributable to the authority may be permitted, provided such changes do not alter the nature of the contract and their value does not exceed 50 per cent of the original value. As above, the 50 per cent threshold applies per modification, and a modification notice is required. The onset of Covid-19 is a now classic example of the kind of genuinely unforeseen circumstances justifying contract changes. But now that we are all too familiar with Covid, it cannot constitute a lawful basis under this provision going forward.

4. Corporate restructuring: A change to the identity of the original contractor is a material – and unlawful – change. This makes obvious sense: the whole thrust of the procurement regime is to appoint a contractor following a competition in compliance with the rules. If it were possible to simply swap in a new contractor once the contract was awarded, this would seriously undermine the intent and purpose of the rules. However, in limited circumstances, it is permissible to change the contractor – following corporate restructuring, including merger or acquisition, provided the change does not entail further substantial modifications and the new contractor satisfies any selection criteria used in the original competition.

5. Non-substantial modifications: Changes deemed not “substantial” are permitted. Examples of substantial modifications include:

• The introduction of conditions which, had they been part of the initial procedure, would have allowed other candidates to participate, led to a different tender being accepted, or attracted more bidders;
• A change in the economic balance of the contract in favour of the contractor in a way not provided for in the original contract: for example, where the authority takes back risk originally transferred to the contractor;
• A significant extension of the contract’s scope.

6. Low value modifications: Low value changes are allowed if their value does not exceed the relevant EU threshold and is below 10 per cent of the initial contract value for services or supplies, or 15 per cent for works. Such changes must not alter the overall nature of the contract. Successive low value changes must be cumulated and must cumulatively stay within the above limits. Once the limits are exhausted, no further low value changes may be made.

Summary

Regulation 72 plays a pivotal role in ensuring that changes to public contracts are handled with both legal precision and transparency. While Regulation 72 offers a degree of flexibility, this flexibility is constrained by strict legal requirements designed to preserve the integrity of the original procurement process.

Non-compliance with the provisions of Regulation 72 creates significant risk, exposing public bodies to legal challenge and reputational harm. It is therefore essential that any proposed modification is rigorously assessed against the defined parameters. The so-called “safe harbours” under Regulation 72 are not blanket permissions; they are narrowly defined pathways, the use of which must be clearly justified and, where required, notified to the market.

As public scrutiny of public spending increases, a transparent and compliant approach to contract modifications is not just a legal obligation – it is a public duty. Ultimately, adherence to Regulation 72 enhances authorities’ credibility and ensures that resources are managed responsibly.

W: www.beauchamps.ie