If you have entered into a long-term contract with a public body, you may think it is open to you and the public body to seek to renegotiate its terms. However, if the new terms mean that the contract is “materially different in character” from the original you may find that an argument is raised that the entire contract must be retendered or that it could be treated as terminated by the public body.
New regulations came into force on 26 February 2015 (the Public Contracts Regulations 2015/102) implementing EU Directive 2014/24. A contract procured under the EU public procurement rules is considered to have been substantially changed where:
However, the regulations assist by indicating where changes are insubstantial:
In addition, the regulations do allow for four situations (described as providing “a safe harbour”) in which a substantial modification of the contract will be permitted:
It is yet to be seen what the practical impact of these changes will mean for contractors and public authorities. However, it could be argued that the new regulations do give greater certainty about what are permitted changes and that this will prove beneficial for both contractors and public authorities alike.
However, one new feature of the regulations is that they require that new public contracts must contain terms to allow the public authority to terminate the contract if a substantial modification has been made (as described above). If this is not expressly written in the contract, it is to be treated as an implied term of that public contract allowing the public body to terminate on notice. Termination of public contracts remains an issue in the spotlight since the Treasury published its PPP Policy Note: Early termination of contracts in June 2015. Of course, termination of a large public contract on grounds where the public authority has promoted the change may prove to have significant cost consequences for the public authority in paying appropriate compensation to the contractor, proving a significant disincentive to termination for the public sector.
Finally, it is worth reflecting that this new European and domestic legislation has appeared rather late in the day, following a significant amount of case law beginning with the case of Pressetext Nachrichtenagentur GmbH v Austria (C-454/06) in 2008. It is to be hoped that this new legislation on changes does not fire the starting pistol on a further round of public procurement law challenges commenced in order to clarify the intention of what constitutes “a substantial modification” to an existing contract.