If a contract subject to the public procurement regime is “materially varied” it must be retendered. What amounts to a material variation has been a matter for case law following the leading European Case Pressetext.
The new UK public contracts regulations (in force from 26 February 2015) have codified some of that law and added a few ‘safe harbours.’ However the essence of whether a contract has been materially varied will remain. It is a matter of fact whether the revision or amendment to a contract produces something which is materially different in character.
The High Court has recently looked at material variation arguments in a judicial review claim brought by Mr Kim Gottlieb against Winchester City Council. Mr Gottlieb is a City Councillor who objects to the proposals for development of a large city centre site known as Silver Hill.
The redevelopment contract was originally awarded in 2004 without a tender (in breach of regulations). However, further amendments were made in 2014 under a clause which expressly allowed variations. These amendments converted the contract from an unviable commercial venture into a commercially viable one.
The judge was convinced that a change of that nature is enough to require re-tendering (or in this case – as the Council had failed to tender it the first time - tendering). The simple existence of a clause which permits variations is not enough to exclude material variation challenges.
The changes which the judge found amounted to material variations were:
- The number of residential units required to be built was reduced
- The developer was permitted to substitute a financial contribution for an original requirement to provide affordable housing
- A requirement to build a new bus station and associated facilities was removed and the developer was instead permitted to build additional retail space in its place
- A requirement to provide a shop mobility centre, a market store and a CCTV monitoring office was removed
- The size of the plot on which the development would be built was extended
- The original requirement that the developer procure the construction works by competitive tender was removed.
The key points from this points are:
- A challenge to a materially varied contract can potentially be made by any individual with sufficient interest. It need not be a business which might have wished to tender itself. Locally interested individuals must however have sufficient standing which may in turn depend upon them showing they have a genuine rather than ‘political’ interest in stopping the contract.
- A generic variation clause cannot be used to implement what would otherwise be a material change under Regulation 72(1)(a) because such clauses lack sufficient precision. Regulation 72(1)(a) allows changes to be implemented through specific review clauses that identify the nature of a potential change and the circumstances in which it may be made.
- A key point is the commercial balance of the contract. If a change makes it more attractive for a bidder then it may be more vulnerable to challenge. This can be contrasted to cases such as the recent example of Edenred where the commercial balance of the contract was retained but more work was included within it and no material variation was found.