Shining a light on direct awards and contract modification: transparency and contract change notices under the Procurement Act 2023

An area in which the UK Government's transparency "ambition" under the Procurement Act 2023 (PA 2023) will undoubtedly increase visibility of procurement activity is the direct award of contracts without tendering and contract modifications. This may open up new opportunities for suppliers to challenge such awards/ modifications and will create additional burden and risk for contracting authorities (and their suppliers).

Under the current procurement rules, prior publication of an anticipated direct award or contract modification is voluntary.  Where a contracting authority makes a direct award or modifies a contract in one of the circumstances (in each case) permitted by the rules, it can, but is not obliged to, publish a notice, known as a voluntary ex ante transparency notice, or "VEAT notice", announcing its intention to make the direct award/ contract modification and setting out its rationale for why such award/ modification is permitted under the procurement rules.  Provided that the authority does not enter into the contract/ modification within 10 days of publication of the VEAT notice, the authority will benefit from a defence in the event that an aggrieved economic operator who would have wished to have the opportunity to bid for the contract or the contract as modified brings an action seeking to have the contract/ modification declared ineffective. 

VEAT notices are widely, though not universally, used in the case of direct awards and contract modifications.  The decision of whether or not to publish a VEAT notice typically involves a number of strategic, commercial and legal considerations, including the nature of the contract/ modification, the strength of the justification for the direct award/ modification, the perceived likelihood of challenge to the direct award/ modification and the risk appetite of both the authority and the supplier.  Often, suppliers who are benefiting from a direct award or contract modification will push for a VEAT notice to be published as a way of protecting the contract from being declared ineffective, shifting risk onto the contracting authority in the event of a legal challenge to the direct award/ modification. 

The PA 2023 will sweep away such tactical considerations with the introduction of mandatory publication of a notice before a contracting authority either:

• makes a direct award of a public contract without competition (a transparency notice); or
• (subject to certain exceptions) modifies a public contract (a contract change notice).

As with the present VEAT notices, transparency notices and contract change notices will have to set out the authority's reasons why the direct award/ contract change was permitted under the relevant provisions of the PA 2023.  Certain more specific requirements for the content of notices are set out in the Procurement Regulations 2024 (Procurement Regulations).

In the case of direct awards, it appears that authorities will also have to publish a new-style contract award notice (see our blog Transparency of procurement under the Procurement Act 2023 – more information but less openness?) and apply a mandatory eight working day standstill before entering into the contract. 

In the case of contract modifications, no standstill is required after publication of the contract change notice but a voluntary standstill of not less than eight working days may be applied.

Not all contract changes require prior publication under the PA 2023.  There is an exemption for smaller modifications that:

• increase or decrease the estimated value of the contract by 10% or less (goods or services) or 15% or less (works); or
• increase or decrease the term of the contract by 10% or less of the maximum term provided for on award. 

In relation to direct awards without competition, the publication requirements of the PA 2023 are unlikely to change good practice with regard to publication of VEAT notices.  Although there is no hard-and-fast rule given the voluntary nature of the present rules, a well-advised authority that considered it had good grounds to make a direct award might well decide to publish a VEAT notice in order to secure the protection from possible ineffectiveness that the notice would confer.  Publication of a transparency notice under the new regime will achieve a very similar outcome.  However, it cannot be excluded that direct awards occur today without any form of publication, where perhaps the justification is weak or non-existent, or where the authority simply decides that it does not want to advertise a possibly illegal direct award.  Under the new rules, authorities will no longer be able to hide potentially unlawful awards and hope that they fall under the radar.

Contract modifications are extremely common, especially in longer term contracts that need to be updated and amended as circumstances change.  Careful consideration needs to be given, and will continue to need to be given, to whether a proposed modification falls within one of the grounds for permitted contract modifications.  But the obligation to publish all contract modifications (subject to the de minimis exceptions outlined above) should increase the intensity of that review for both authorities and contractors.  From the perspective of previously unsuccessful bidders for public contracts, contract change notices will provide a valuable source of information for monitoring whether the contract that they have lost out on continues to be performed in line with the original procurement competition or, conversely, whether modifications might have caused the contract to depart sufficiently from the original procurement to warrant a legal challenge.