The Supreme Court, in its first ever procurement decision, has considered whether or not a contract change should be treated as, in substance, a new contract requiring a fresh tender process. The case related to the Government's tax free childcare scheme. The Court found that the change did not require a new procurement (affirming earlier decisions in the High Court[1] and Court of Appeal). With the scheme due to kick off in the autumn, the Government must be breathing a sigh of relief that it need not be delayed by a new tender process.

Key facts

NS&I, a government department and Executive Agency of the Chancellor of the Exchequer, has responsibility for administering childcare accounts and supporting services under arrangements with HM Treasury and HM Revenue and Customs. Atos is the service provider under a wide-ranging 2014 outsourcing agreement with NS&I. The change makes Atos responsible for the delivery of the new childcare scheme.

What are the rules on contract change?

The Court departed from the High Court and Court of Appeal's analyses by expressly applying the provisions of the new Public Contracts Regulations 2015 on contract change,[2] which it determined were appropriate for testing the validity of the proposed amendments even though the original contract was awarded under the previous regulations. The 2015 Regulations set out six sets of circumstances in which a contracting authority need not run a new procurement where there is contract change.

Key points of the decision

The basis of the Court's decision was that the modification falls within the "non-substantial modification" exemption, because it does not considerably extend the scope of the contract. The Court noted that:

  • changes to the level of the contracted services to be provided are not banned if the initial contract and procurement documents envisaged such an expansion of services, committed the contractor to undertake them and required it to have the resources to do so
  • the essential nature of the operational services provided by Atos will not change
  • provisions were included in the Atos contract to ensure that any modification does not alter the economic balance of the contract or increase the profit margin available to Atos.

The Court also commented that, while it did not need to base its decision on this ground, it was inclined to consider that the contract variation provisions in the Atos contract were sufficiently defined to meet the "clear, precise and unequivocal review clause" criterion for exemption from the requirement to re-procure. However it noted that there is scope for debate on the nature of the review clause covered by this criterion.

Finally, the Court confirmed that the arrangement between HM Treasury, HM Revenue and Customs and NS&I providing for delivery of the childcare scheme is legally distinct from NS&I's contract with Atos and is not in itself a public contract but a memorandum of understanding that, of necessity, may be torn up at a moment's notice without legal repercussions, in order to respond to changes in policy. This confirms that intra-government arrangements allocating responsibility for the delivery of policy objectives will often fall outside the scope of the public procurement regime.

Comment

The judgment authorises (even encourages) contracting authorities to scope their procurements (through the OJEU Notice and other procurement documents, including any draft contract attached to the ITT) broadly enough such that any future expansion in requirements can be accommodated under the initial contract without having to run a new procurement. A procurement scoped, for example, to meet the IT hardware requirements of an organisation for the next five years will permit changes that would not be possible if the procurement had been for the supply of 500 hundred computers. This admittedly runs counter to the Government's stated preference for division of larger contracts into smaller lots to open up opportunities to SMEs.

The Court's expressed doubts on the nature of review clauses covered by the "clear, precise and unequivocal review clause" criterion suggests we will see further litigation in this area.