As the consequences of COVID-19 continue, it is reasonable to assume that making changes to commercial contracts may become more of a necessity both now and over the next number of months as requirements and demands change due to this global pandemic.
Allowing and regulating contract variations should be a standard feature of all contracts once any proposed variations are planned accordingly
The reasons for the variation should be clearly documented and it is important that any variations are not used to mask poor performance or underlying problems. The variation impact on original timeframes, deliverables and value for money should be assessed thoroughly before undertaking any changes.
There are specific laws that apply to changes in Public Sector Contracts.
Material changes to a contract after it has been awarded give rise to a new contract which needs to be retendered.
The test for material change is-
Does the change introduce conditions, which had they been part of the initial award procedure, would have allowed for the admission of the tenders other than those initially admitted?
Does it extent the scope of the contract considerably?
Has the economic balance of the contract shifted in favor of the contractor in a manner not provided for in terms of the initial contract?
However, there are some steps that public bodies can take legally to make changes mid-contract which are-:
Review Clause Exception:
Provision for a modification included in the original Procurement Documentation/Tender which states in clear and precise terms the conditions under which modification provisions may be used stating the scope and nature of such possible modifications. It is imperative that any such clauses don’t alter the overall nature of the contract
Where there is a requirement for additional works, services or supplies not included in the initial procurement and where a change of contractor cannot be made for economic or technical reasons and it would cause significant inconvenience or substantial duplication of costs for the contracting authority. Must not exceed 50% of the original contract value and an OJEU notice of the change is required.
A modification to the contract is permitted where the value of the modification is below threshold and below 10% of initial contract value for services/supplies (15% for works). The modification must not alter the overall nature of the contract.
A modification is necessary due to unforeseeable circumstances e.g. Covid 19. Such modifications should not exceed 50% of the original contract value. Necessary to keep written justification with reference to specific facts outlining the reasons for the modification. Publication of OJEU modification notice is required.
Change of Contractor:
Allowed following corporate restructuring ((e.g. takeover, merger, insolvency) and new operator fulfils qualitative selection criteria.
The specification and administration of change is vital as it needs to be fully documented and agreed between both parties and any additional demands on the incumbent supplier must be carefully controlled.
Change can be difficult however, often necessary.