The recent case of James Waste Management LLP v Essex County Council  EWHC 1157 (TCC) deals with the issues surrounding the ability for contracting authorities to make changes to contracts. In the case, James Waste Management LLP brought a claim against Essex County Council. The claimant alleged that the council had breached the Public Contracts Regulations 2015 (PCR) in modifying its agreement with Veolia, so as to allow Veolia to take waste to a new disposal facility elsewhere in Essex and change the basis of charging. The arguments made by James Waste concerned Regulation 72 of the PCR - James Waste contended that these changes amounted to a substantial modification of the contract, making it materially different. In view of this, it argued that the County Council should have re-advertised the contract and run a new procurement.
James Waste's claim was unsuccessful - the decision handed down by judge Waksman J in the High Court decided that the changes did not render the contract materially different.
In this article, we take a closer look at the PCR, the provisions it sets out for the modification of contract and framework agreements and what the key learning points are from this latest procurement decision.
What constitutes a "safe harbour" in allowing contract modifications?
Under the current law dealing with modifications of public contracts, Regulation 72(1) provides a list of six "gateways" (sometimes called "safe harbours") that allow contracts and framework agreements to be modified without a new procurement procedure. For each permitted gateway, however, the regulation clearly sets out specific circumstances that need to be met. Judge Waksman J held that these gateways should be interpreted narrowly, as they are derogations from the general rule in Regulation 72(9) that modifications are impermissible. The judge further held that there is no reverse burden of proof imposed upon a contracting authority who invokes the gateways, despite the fact that the gateways constitute derogations.
James Waste argued that the change brought about a "considerable" extension to the scope of the contract under Regulation 72(8)(d), and that the change was therefore substantial. It argued that any extension that has the value of (not much) more than the operative threshold for engagement of the PCR is enough to be "considerable". Waksman J, however, held that a "considerable" extension of the scope under Regulation 72(8)(d) should be interpreted in a common sense way; the overall nature of the services was unchanged and, in any event, the variation was in place for a short period of time.
Key points on materiality of contract variations
He noted that considering a generally narrow approach to the construction of the elements of the gateways under Regulation 72 does not entail interpreting them so narrowly as to deprive them of any usefulness; there are situations when a contract change will be able to benefit from one of them (and only one need be satisfied in order for the change to be made compliantly).
It was also held that it is unnecessary to show that the new conditions would have entailed the acceptance of a different tender. Instead, it is only necessary to show that there is a real prospect that another tenderer would have won if the changed contract had featured in the original procurement. Applying this threshold pays "appropriate heed to the principle of protecting against real not hypothetical distortion of competition, but without creating too high a burden" according to Waksman J.
It is clear from the judgment that there will be a better prospect of authorities being able to raise a successful argument that a change is not substantial if, overall, it is not made for the long-term, but instead is to last for only a short time. Additionally, it will help if the value of a change is relatively small in comparison with the overall contract value (and when considering "economic balance" the contract must be looked at in its entirety), and does not introduce completely novel subject-matter into the contract.
Wider impacts for public procurements
The judgement provides several points of clarification for contracting authorities as to whether they can rely on the gateways under the PCR in order to modify a contract. It is the first decided case in England on the interpretation and operation of Regulation 72, an area of procurement that is often the subject of vexed questions around the materiality of contract variations. Two key takeaways for those involved in public procurements are:
- firstly, the case affirms that the narrow interpretation of the gateways should ensure that contract changes are made sparingly; and
- secondly, it indicates that it is a good idea for contracting authorities to try to make provisions in the contract at drafting stage for the possibility of subsequent changes (bearing in mind the gateway in Regulation 72(1)(a) which warns against providing for changes which would alter the overall nature of the contract).
To discuss any of the key points raised from this important case decision and how to inform your approach to future public procurement contracts, please contact Christopher Brennan.