Procurement – case law update on changes to an existing public contract

Procurement – case law update on changes to an existing

On 11 February 2015 the High Court issued an important judgement on an important area of public procurement law: modifications/variations of an existing (public) contract.



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Row of Houses on Street

This judgement, relating to the Silver Hill scheme in Winchester, deals with a development agreement (DA) for the comprehensive redevelopment of a site by way of a mixed-use development comprising residential, retail, car parking, a replacement bus station, a civic square, a CCTV office, shop mobility, Dial-a-Ride service, market store and changes the Council attempted to introduce in favour of the developer. The original 2004 DA had been put in place without a proper public procurement process and could not be challenged for time limitation reasons.

This judgement is important for contracting authorities (including housing associations) because:

  • It provides some clarity around when changes to an existing public contract could be substantial and amount to a new contract which ought to be retendered before being agreed;
  • It explains that the inclusion of a variation clause in a public contract needs to be specific if it is to avoid the need for a new procurement;
  • It confirms that the analysis of the financial equilibrium of the contract under the proposed variation has to take into account all relevant financial factors; and
  • It confirms that a challenger of a varied public contract need not identify specific tenderers who would have tendered for it; demonstrating that, on the balance of probabilities, a “potential bidder” would have applied, is sufficient;

The case

In August 2014, the Council agreed to a number of variations to the DA including removing the requirement for affordable housing and replacing a requirement for a bus station, market store, Shop Mobility and Dial a Ride with extra retail space including a new department store which was not part of the original scheme.

Mr Gottlieb, a (Tory) Councillor for the (essentially Tory) Winchester Council and a property developer himself, was concerned by these variations and subsequently challenged the lawfulness of the Council’s decision by means of a judicial review.

Mr Gottlieb’s challenge was based on the argument that the Council had acted unlawfully by failing to carry out a public procurement process in circumstances where the nature of the changes meant that it was obliged to do so.

The Court concluded that the variations to the DA, taken as a whole, resulted in a contract which was materially different in character; the use of the contract variation clause to effect the changes was not a justification as it was general and unspecific (such approach would circumvent the legal requirement and legalise the breach in all contracts). The Court noted in particular:

  • The terms of the DA became a significantly more commercially attractive for the developer;
  • In concession or DAs, economic benefit analysis needs to consider not only the financial terms of the varied agreement but also the potential profits from third party contracts (increased opportunity for profit); 
  • Even if the financial terms represent good value for the Council, there are other relevant factors to be considered. The architecture, design and layout of the scheme are as important as the cost, given its setting in the heart of an historic cathedral city. The developer had responsibility for presenting the architecture, design and layout of the proposed scheme to the Council. If there was an open competition, other bidders could present alternative, and perhaps improved, proposals; 
  • The changes to the plans for the City's central bus terminus and the proposed loss of 35% affordable housing were major changes;
  • While delays are always regrettable, there is no pressingly urgent need for the redevelopment;
  • The claimant had sufficient and legitimate interest as a resident, council tax payer, and City Councillor, to ensure that the Council complies with the law;
  • The Council has committed (twice) a serious breach of the procurement regime.

KPMG procurement law and services

KPMG LLP is authorised by the Solicitors Regulation Authority as an Alternative Business Structure (ABS) and can provide EU and UK Public procurement law advice and support through a multi-disciplinary team of lawyers, procurement managers and strategists.

If you require more information on the KPMG offering in this area or wish to discuss any matters relating to public procurement, please contact Michail Papadakis.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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