In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
Here are a few suggestions:
Start drafting your contract and procurement documents sooner: The biggest change is a new requirement that all of the procurement and contract documents are made available online “from the date of publication of the OJEU notice” to start a procurement process. Providers with contracts that will come to an end in 2015 should already have started to scope whether and how they want to reprocure those contracts. They will also need to start preparing the contract and procurement documents very soon;
Consider starting procurements under the current Regulations: The new rules will limit the minimum turnover level that a provider can require of its suppliers to twice the annual contract value (other than in “special high-risk cases”). They will also limit the financial prequalification tests that a provider can carry out. A provider that is concerned that this increases the risk of their contractor becoming insolvent during their contract should consider whether to bring forward the procurement so it is carried out under the current rules;
Formalise your Part B contracts: Contracts that are currently for “Part B services” will be split into those that become fully regulated and those that are covered by the new regime for “social and other specific services” (which includes legal services). An OJEU notice and procurement process will be needed for a “specific services” contract or framework with a value of over €750,000 (currently about £600,000). The Regulations are likely to include transitional arrangements delaying the need to retender these services until the expiry of current contracts. The detail of these transitional arrangements will not be available until the draft Regulations are published. However, it is likely that a formal contract will need to be in place to take advantage of them. As soon as the draft Regulations are published, providers will need to study the transitional provisions to check that their current arrangements for these services fall within them. There is no point in doing this until the Regulations are published, since it will not be possible to say before then what arrangements the transitional provisions will preserve;
Consider extending current contracts for Part B services: Contracts for “other services”, like grounds maintenance, will become fully regulated under the new rules. If these contracts are working well, it is worth considering whether they can be extended. This might involve the use of options. There is a risk that the transitional arrangements may not authorise the exercise of options to extend these contracts. It is therefore going to be much safer to exercise any options to extend these contracts now, rather than when the new Regulations are in force;
Review your group structure arrangements: There is a small change in the wording of the rules that exempt contracts within a group structure from having to be tendered. Under the Teckal case, the substantial majority (over 90%) of the subsidiary’s turnover had to come from work “with” the parent. Under the Directive, over 80% (a welcome reduction) will have to come from tasks “entrusted to it” by the parent. This is going to be much easier to argue for a group structure where there is an intra group agreement that sets out clear objectives for the group as a whole, and states which of them is “entrusted” to which group member(s) to achieve. Providers also need to consider the impact of new case law requiring all the members of a “Teckal subsidiary” themselves to be organisations subject to the EU procurement rules;
Future proof contracts you are letting now: Providers should plan now to take maximum advantage of the new rules allowing specific variations to contracts. Any options within those contracts (for example to extend either their scope or duration, or to change the basis of payment) will need to be set out in “clear, precise and unequivocal review clauses” that “state the scope and nature of possible modifications” and the “conditions under which they may be used”. These will require careful drafting.
For more information
Our seminar programme includes seminars on the new Directive. Look out for more when the Regulations are issued. We will also be issuing e-briefings on the new Regulations when they appear.
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