Under the EU public procurement rules, where material changes are made to a contract awarded by a public authority, particularly those which shift the economic balance in favour of the contractor, the contract should be re-advertised in the OJEU. The English High Court has held that variations to a development contract agreed by Winchester County Council but not advertised in the Official Journal of the EU (‘OJEU’) were ‘material’ and therefore in breach of the EU public procurement rules, so forcing the Council to halt its plans (R (on the application of Gottlieb) v Winchester County Council (11 February 2015)).
The variations to a wide ranging development agreement included the expansion of retail development space by 50% which had become available, as a bus station originally envisaged was no longer required – as a result of a decision of the bus operator Stagecoach – and removal of a requirement to provide 35% affordable housing.
The Court held that these were changes to essential terms and altered the economic balance of the contract in favour of the developer. The Court stated ‘The fundamental change which the parties intended to achieve was to increase the potential profit to the Developer so as to make the scheme viable (ie. to achieve more than the 10% threshold return). Both parties believed the original contract was no longer viable.’
As regards the question of whether the outcome would have been different but for the breach, the Court held that it was not necessary to point to actual bidders who might have come forward, but rather, whether a realistic hypothetical bidder would have bid for the contracts.
The Court also found that a clause authorising variations was broad and unspecific thus breaching the principle of transparency. Such clauses should provide bidders with information which would enable them to assess the potential scope for variations when tendering.
Finally, it is worth noting that the claimant was a resident and local councillor involved in the consideration of a development through its various stages. The Public Contracts Regulations 2015 (and their predecessor 2006 Regulations) allow only an ‘economic operator’ – a potentially competing contractor - to bring proceedings for breach of the Regulations. There is no such restriction in judicial review cases, though claimants must be able to demonstrate ‘sufficient interest’. Mr Gottlieb’s membership of the authority certainly increased that interest.
Comment: Where variations are contemplated, legal advice should be sought on whether they are ‘material’ hence their conformity with the EU public procurement rules. It may also be the case that the authority should issue a Notice in the OJEU making such changes public, thus reducing the time limits for potential challenges.
Variations, including price revision options, may be permitted where they are provided for in the initial procurement documents and they state the scope of possible modifications and conditions where they may be used. Variations may also be made where their value is below both the threshold for works contracts (approximately £4.3 million) and 15% of the initial contract value (10% for service and supply contracts). In both cases, the Regulations provide that variations must not alter the overall nature of the contract.
Finally, unforeseen additional works are permitted where their value does not exceed 50% of the value of the original contract and where a change of contractor would either not be feasible or would result in duplication of costs.