Amending contracts: Tweak havoc

The recent award of the West Coast Main Line caused some controversy, not least regarding the potential risk that the successful franchisee, First Group, might not be able to get the contract to work for them and would seek to “walk away” and pass the contract back to the government. That is, of course, an extreme scenario, but in the current marketplace there is an amount of renegotiation and amendment to existing contracts. Parties, particularly the procuring party, may not be at as much liberty to agree a change to a contract as they think. If care is not exercised, they may leave themselves vulnerable to claims by parties who have incurred time, cost and effort in tendering works, the terms of which were later materially varied. In other words, amending an existing contract can solve a commercial issue but create a legal one.

There are two aspects to consider. One is the specific rules of the tender process itself - that is, the private law arrangement between the parties to the tender process. The second is the rules that apply as a result of any applicable European procurement regulations. Each needs to be borne in mind if a procuring party agreeing to vary such terms is not to place itself at risk of a challenge or damages claim from an unsuccessful tenderer under the original tender process.

There is a risk under general English law in making post-award contractual amendments if the right to do that has not been reserved. In the European case of Commission vs CAS Succhi (2004), it was held that the contracting authority should consider the circumstances that might necessitate amendments, and “it is required expressly to provide for that possibility, as well as for the relevant detailed rules”. Parties can therefore agree to vary the contract but only if all of the interested parties at the tender stage are aware of the possibility of these changes, the circumstances in which such variations may arise and the procedure that will be followed in relation
to those.

Amendments made to ‘accommodate changed external circumstances’ or circumstances beyond the parties’ control will not usually be considered as material

Even such a reservation may not always be enough to protect against infringement of the principles of transparency. In R vs Legal Services Commission (LSC) (2007), the parties entered into a contract relating to publicly funded work undertaken by solicitors. The contract gave the LSC extensive powers of unilateral amendment. It was held that where the reservation of power to make amendments is too wide and would enable the contracting authority to effectively rewrite the terms, potential tenderers could not be offered any certainty of terms.

There is also the European procurement law angle. A number of contracting bodies subject to European procurement law may find themselves being invited to amend the terms of existing contracts with contractors for various reasons, such as reductions in volume or through-put. The question arises as to whether or not a body subject to such regulation is entitled to agree to vary the terms of an existing contract with a contractor when those terms differ from the terms on which contractors were invited to tender for the project in the first place.
In EU case law, the Pressetext case established that where amendments to an existing contract are materially different to the original provisions, they will constitute a new contract award. In Pressetext, the issues revolved around contract amendments arising from the conversion from Austrian schillings to euros and a rounding off of prices by way of a minimal reduction. In that case these were not held to be material changes.

Material amendments are those that are so different to the original provisions that they demonstrate an intention to renegotiate the terms. Examples may include amending the scope of the contractual services to include those not initially specified. On the other hand, amendments made to “accommodate changed external circumstances” or circumstances beyond the parties’ control will not usually be considered as material.

In a practical sense, things to think about are whether the amendments are significant enough that, had they been included in the initial tender process, other tenderers would have submitted a bid. Do the amendments distort competition to the detriment of other potential tenderers? Do the amendments change the balance of the risk and/or benefit of the contract from the original position?

If the answer to either of these questions is “yes” and the amendments constitute material changes, then it is likely that they will amount to the award of a new contract and the public body offering the contract could be in breach of EU procurement rules. It is not just the procuring party that needs to take care - a party tendering to perform works subject to EU procurement rules should assume the terms at tender stage are likely to remain fixed for the duration of the contract.

James Bessey is a partner in the construction department at Cobbetts