There are many reasons why a housing provider may want to vary a software contract, including to:
- Add user licences;
- Extend support and maintenance arrangements;
- Install upgrades, potentially to a new/replacement product; and
- Add new modules to an existing system.
Before doing any of these, a provider should assess the public procurement implications. It’s a breach of the regulatory framework (registered providers) or statutory duties (local authorities) for a provider deliberately to breach the public procurement rules, so some justification for the purchase is needed. This needs to be considered alongside the operational need/risk of not going ahead with a purchase, and other procurement options (such as through a framework) that may be available.
In this article we look at the public procurement issues through the lens of purchasing additional software modules.
Before you can answer the question of whether the purchase is permitted, you will need to consider:
- Do you have a copy of the original contract and procurement documents including the OJEU or Find a Tender Service (FaTS) contract and award notices?
- Was the original procurement under the Public Contracts Regulations 2015 (PCR 2015) or preceding legislation (including through a framework call-off)?
- What will the new module do, why do you need it and how does it relate to the existing software?
- How long will the new module be in place for?
- How much will the new module cost, covering both one-off costs and ongoing additional support and maintenance? How will that compare with what you would have paid for support and maintenance without the new module?
- Will taking on the new module lead to a need to change any other terms of your existing contract?
- Have you varied this particular contract before? If so, how, when and how much did the change alter the original price?
Regulation 72, PCR 2015 sets out the extent to which a contract valued above the applicable tendering threshold can be varied by a provider without triggering the need for a new procurement process. It applies whether your original contract was procured under PCR 2015 or earlier procurement legislation and whether this was done before or after the end of the Brexit transitional period (at least for now).
Regulation 72 authorises changes to contracts in the following circumstances:
Contract term: If the original contract includes an option to purchase the new module, this can be exercised in line with its terms. This must be more than just a standard variation clause. What is needed is a “clear, precise and unequivocal” provision that sets out the scope and nature of the option and objective conditions governing when it will be exercised. The change must not alter the overall nature of your contract. This authorisation will apply only where the potential purchase has been foreseen and planned for.
New circumstances: A contract can be changed where the value of the change does not exceed 50 per cent of the original contract value (plus inflation, where payable under the contract) and either:
- The additional module has become necessary since the original procurement (i.e. it was not necessary then, but circumstances have since changed which mean it is needed now), a change of supplier cannot be made for economic or technical reasons and it would cause significant inconvenience or substantial duplication of costs for the provider to change supplier. The likely focus here will be on technical reasons around the interchangeability or interoperability of the current system and other third-party systems that might arise if the new module was procured separately); or
- The need for the module has been brought about by unforeseeable circumstances (such as technological changes or new service delivery responsibilities) and the modification does not alter the overall nature of the contract.
A provider relying on either of these authorisations must publish a notice in FaTS, so providers will want a robust justification before relying on them.
Low-value changes: The module can be purchased where this does not alter the overall nature of the contract and the change to the contract price is below both:
- The PCR 2015 threshold for tendering services/supplies contracts (currently £189,330); and
- 10 per cent of the original contract value (plus inflation, where applicable). This 10 per cent figure is cumulative, so the provider must consider all previous minor changes under this provision.
No notices are needed with this provision. However, it is better not to rely on it where another authorisation also applies, so as not to ‘use up’ the 10 per cent threshold.
Insubstantial changes: The module can be purchased where this is not a “substantial change” to the original contract; i.e. it does not:
- Make the changed contract materially different in character to the original contract;
- Alter the original procurement conditions such that the tenderers for or result of the original procurement process would have been different;
- Change the economic balance in favour of the supplier in a way not provided for in the contract; or
- Extend the scope of the contract considerably.
This is often the route of last resort but may still be useful sometimes.
The information given from the preliminary investigations above is essential when considering whether any of these authorisations can be relied on. In very limited circumstances, it may also be possible to procure the module under a new procurement procedure which allows the provider to negotiate directly with a single supplier.
Purchasing the module
Regulation 72 gives several potential authorisations providers may be able to rely on to purchase additional modules for their software products. In some cases, the Regulation 72 analysis will provide a clear-cut route. In other cases, there will be no definite answer and providers will need to undertake a risk assessment of proceeding with or without the module and consider mitigations. In most cases, this will require early legal and procurement input.
Andrew Millross is a partner and Alex Lawrence is a senior associate at Anthony Collins Solicitors.