Health service procurement: draft statutory guidance - Section 7: modification of contracts and framework agreements

There will be situations where contracts or framework agreements need to be modified to reflect or account for changes to services or circumstances during their term.

One aim of the regime is to avoid processes that only bring limited value to people who use the services. Therefore, this regime allows for certain modifications to be made to contracts or framework agreements during their term without the need for a new procurement process.

Depending on circumstances, permitted modifications can be made without following a new procurement process, but some cases will require the publication of notices.

Modifications which make an existing contract or framework agreement materially different in character are not permitted under the regime and require a new procurement process to be undertaken. Further information on permitted and not permitted modifications is given below.

Relevant authorities are expected to consider this section in conjunction with the modifications (variations) provisions of the relevant contract or sub-contract (for example, the variation of the contract/specification of the NHS Wales standard terms and conditions).

The provisions in this section must only be used for modification of contracts during their term and not to circumvent the regulations when a contract ends and a new one needs to be awarded.

Under this regime, some modifications are permitted and do not require a new procurement process.

Modifications to contracts originally awarded under direct award process 1

Where the original contract was awarded under direct award process 1 and the modification does not materially alter the character of the contract, then the modification is permitted. 

If that modification is attributable to a decision of the relevant authority and the cumulative change in the estimated lifetime value of the contract since it was entered into is £500,000 or more, the modification is still permitted, but the relevant authority must publish a notice.

Modifications to contracts originally awarded under direct award process 2 or the most suitable provider process, or contracts or framework agreements originally awarded or concluded under the competitive process, or to contracts or framework agreements that were originally awarded or concluded under the Public Contracts Regulations 2015

Where the original contract was awarded under direct award process 2 or the most suitable provider process, or contracts or framework agreements originally awarded or concluded under the competitive process (including framework agreements) or the public contracts regulations 2015, then modifications are permitted in the following instances:

• the modification is clearly and unambiguously provided for in the contract or framework agreement documents (that is the scope and nature of the potential change has been described in detail in the existing contract)
• the modification is solely a change in the identity of the provider due to succession into the position of provider following corporate changes (such as as the result of a corporate takeover, merger, acquisition or insolvency), and where the relevant authority is satisfied that the provider meets the basic selection criteria
• the modification does not render the contract or framework agreement materially different in character and is made in response to external factors beyond the control of the relevant authority and the provider, including but not limited to changes in:
  1. patient or service user volume
  2. prices in accordance with a formula provided for in the contract documents (such as index linking)
• the modification is attributable to a decision of the relevant authority, does not materially alter the character of the contract or framework agreement, and the cumulative change in the estimated lifetime value of the contract or framework agreement is under £500,000 or under 25% when compared to the estimated lifetime value of the contract or framework agreement when it was entered into or concluded

If the relevant authority makes a permitted modification to a contract that was originally awarded under direct award process 2 or the most suitable provider process, or to contract or framework agreement that was originally awarded or concluded under the competitive process or the Public Contracts Regulations 2015), it must publish a notice where all the below apply:

• that modification is attributable to a decision of the relevant authority
• the cumulative change in the estimated lifetime value of the contract or framework agreement is £500,000 or more

Cumulative change is the value of all permitted modifications under the regulations when added to the estimated lifetime value of the contract or framework agreement since it was entered into or concluded. For example, if the estimated lifetime value of a contract is £1m at the time the agreement was entered into, a modification has been made to the contract that was attributable to a decision of the relevant authority to the value of £350,000 (35%) the cumulative change value is £350,000. Should a further modification to the contract be required that is attributable to a decision of the relevant authority, the value of that change must not exceed £150,000 in value as this would result in the cumulative change in the estimated lifetime value of the contract being £500,000 and 50% of the lifetime value of the contract when it was entered into. Therefore, further modifications with a value greater than £150,000 would exceed the permitted modification values under the regulations.

To note:

• contracts entered before the commencement of the regulations must be modified in accordance with this regime

Where the decision to make the modification is attributable to the relevant authority and that modification makes the existing contract or framework agreement materially different in character, the modification is not permitted under this regime and a new procurement process will need to be undertaken.

In addition, modifications are not permitted where the original contract was awarded following direct award process 2 or the most suitable provider process, or the original contract or framework agreement was awarded or concluded following the competitive process or under the Public Contracts Regulations 2015, and where the modification represents:

• a cumulative change in the estimated lifetime value of the contract or framework agreement when it was entered into or concluded of £500,000 or more
• a cumulative change in the estimate lifetime value of the contract or framework agreement when it was entered into or concluded of 25% or more

In such a case, a new procurement process will need to be undertaken and the relevant authority must follow the appropriate procurement process to select a provider (or group of providers) for the substantially changed service.

Examples of modifications to existing contract awards under regulation 13(4)(d)

Example 1

A relevant authority enters into a contract with an estimated lifetime value of £5million when the contract was entered into. There have been no modifications to the contract thus far. The relevant authority proposes to modify the contract. The modification does not render the contract materially different in character, and the modification is valued at £600,000. While this modification is over £500,000, it only represents 12% of the estimated lifetime value of the existing contract when that contract was entered into. Therefore, the modification is allowable under regulation 13(4)(d).

Example 2

A relevant authority enters into a contract with an estimated lifetime value of £4million. The contract has previously been modified, with modifications thus far totalling £600,000, which represents a cumulative change in the estimated lifetime value of the contract of 15%. No single modification has exceeded £500,000 thus far. The relevant authority proposes to modify the contract further. The modification does not render the contract materially different in character. This modification’s estimated lifetime value is £600,000, which when combined with the previous modifications, exceeds the £500,000 change in cumulative value of the estimated lifetime value of the contract. The cumulative change in value (now £1.2million) represents a 30% increase, therefore is more than the allowable 25%. This modification is therefore not allowable under regulation 13(4)(d).

Example 3

A relevant authority has a contract value of £1million. This contract has not previously been modified. The relevant authority proposes to modify the contract. The modification has an estimated lifetime value of £600,000. This exceeds the £500,000 cumulative change limit and represents a 60% cumulative change to the estimated lifetime value of the contract. This modification is therefore not allowable under regulation 13(4)(d).

Contract modifications may need to be made urgently. In these circumstances, relevant authorities must still be transparent about their procurement process. Details of when contracts can be modified on the basis of urgent situations and what needs to be published and when, can be found in the urgent awards or contract modifications sections.