Understanding What the 2014 EU Procurement Directive Means for You
Part of the reason that procurement is such a complex field is that the rules and directives that control it are always evolving. To those of us in the public sector, and no doubt to those in the private sector as well, one of the of the most significant documents to the world of public procurement contracts is the EU Procurement Directive. The 2014 EU Procurement Directive introduced several noteworthy changes but perhaps one of the more significant changes in that document is the clarification (or attempted clarification) of the rules surrounding changes to contracts once they have been awarded.
If you haven’t yet had the time to sit down and sift through the entire document to see what it says about contract variation, you’re in luck. We’ve been through the whole thing forwards, backwards and sideways and gathered all of the information you need to know about public procurement contract rules:
- Why contract variance has been a difficult issue for a very long time
- The modifications brought about by UK Public Contracts Regulations 2015
- Concerns raised about the new contract variation directives
- Resources for more in-depth information about change of contract and these new directives
Contract variation is an essential part of procurement efforts, so it’s no wonder that changes in public procurement rules can be so complex.
A Brief History of Contract Variation
Contract variation has been for many years a difficult issue. When I was a Procurement Director in the public sector, and then as an interim executive and consultant, I was asked questions relating to this issue on many occasions. Sometimes that was from contract managers, sometimes procurement people, sometimes budget-holders. Some of the questions I received over and over again included:
- Are we OK to change certain contract terms and conditions in the original contract?
- Can we spend more than we planned to (buy more of the goods or services that are covered by the contract)?
- Can we add some additional goods or services to it?
And unfortunately, it was a challenge to provide satisfying answers to these questions. There did not seem to be many hard and fast rules. In UK central government, we tended to work on the basis that the spend could be up to 50% more than originally advertised before anyone worried too much. Changes to terms and condition were more down to whether the supplier would agree; but adding totally new goods or services was the most likely area to lead to the advice that a new competition was needed.
The EU’s contract variation guidelines are always evolving– what do the latest modifications mean for you?
Changes to the EU Variation Guidelines
The new directives attempt to give greater clarity, and last week, Pedro Telles here and Albert Sánchez Graells here reached this topic on their marathon journey through all the UK Public Contracts Regulations 2015. Regulation 72 brings a roster of new(ish) rules to the fore. In general, modifications are possible but within very strict boundaries and only in the specified situations. Here is how Telles lays them out.
“In the Regulation we can find 5 main avenues to change a contract:
- If it had been forecast all along in clear and precise terms
- For additional necessary works, supplies or services under certain circumstances (including a maximum expenditure increase of 50%)
- Due to unforeseen circumstances (without changing contract nature or going over the 50% value threshold)
- Supplier succession
- Alterations are not substantial, irrespective of value (!)
- Alterations have a value under the thresholds, stay within 10% (services and supplies) or 15% (works) and do not change “overall nature” of contract”
Do the new EU contract guidelines truly add clarity, or have they simply made the rules surrounding contract variance more ambiguous?
Should you be concerned about these modifications to the rules about public procurement contracts?
Telles and Sánchez Graells both point out some of the issues in these modifications. What constitutes “clear and precise terms”, or “substantial alteration” or “overall nature”? There seems to be quite a lot of flexibility here, and hence scope for contracting authorities to agree to changes without worrying too much about the regulations.
However, there is an overall desire to respect the basic competitive principles. What contracting authorities need to think about is whether the changes might have led to a different result of the initial competition. If the answer is “yes” or even “possibly”, then there may be an issue over whether the changes are allowable. Here is an extract from the Directives (with our emphasis added).
“It is necessary to clarify the conditions under which modifications to a contract during its performance require a new procurement procedure … A new procurement procedure is required in case of material changes to the initial contract, in particular to the scope and content of the mutual rights and obligations of the parties, including the distribution of intellectual property rights. Such changes demonstrate the parties’ intention to renegotiate essential terms or conditions of that contract. This is the case in particular if the amended conditions would have had an influence on the outcome of the procedure, had they been part of the initial procedure”.
One more point based on pragmatic experience. It is often very difficult for anyone outside the contracting authority and the supplier in question to know that changes have been made. So in terms of the risk of challenge, it may well be lower than for issues that happen during the tendering process, which are more likely to be exposed then or via the immediate feedback mechanisms.
Perhaps because of that “hidden” nature of changes, we have not seen many legal challenges based on post-award variations. They also often happen well into the contract, which again makes it less likely that a disappointed bidder will bother to challenge. However, it only takes one member of staff to leave the supplier and join a competitor company for an issue that seemed to be well concealed to suddenly become a bit more obvious!
Do you agree with these modifications, or do you have concerns about the new contract rules that aren’t addressed here? We’d love to hear from you!
As these modifications take effect, we will continue to share reactions to the new procurement guidelines. In the meantime, do read the websites from Pedro Telles here and Albert Sánchez Graells for further information and views, and be sure to let us know what you think about the EU variation guidelines in the comments!