UK: Procurement Problems In The Credit Crunch

Last Updated: 14 July 2009
Article by Sarah Hannaford, QC and James Thompson

Tender procedures for public contracts in this country are regulated by the Public Contracts Regulations 2006, which implements the European Directive 2004/18. Until recently, unlike in the rest of Europe, there have been few challenges to tender procedures in the UK courts. However, over the last few years disappointed tenderers have become less reluctant to take their complaints to the courts. But has or will the credit crunch affect this trend? And what sort of issues is the credit crunch throwing up for procurements?

The indications so far are that the credit crunch is unlikely to reduce the number of procurement challenges. With work thin on the ground, the importance of winning new contracts increases. If a tenderer is unsuccessful, contrary to its expectations, it may need to review the reasons for failing to win the contract more carefully than in a more buoyant market.

Inadequate Disclosure

One of the most fruitful areas of challenge recently has been inadequate disclosure by the employer of the intended basis for evaluation of tenders in advance. Where the evaluation is to be carried out to establish the most economically advantageous tender, the Regulations require disclosure at the outset of the criteria (such as price, quality and delivery period) on which the evaluation will be based, together with (in all but exceptional circumstances) the relative weightings of these criteria. However, case law has also established that the general European Treaty principles of equal treatment and transparency (set out in Regulation 4) require disclosure of all the elements to be taken into account by the contracting authority and their relative importance: see Case C-532/06 Lianakis v Alexandroupolis (2008). These principles have also been relied upon by the UK courts to find that employers who did not disclose sub-criteria and their weightings were in breach of the Regulations: see Letting International Ltd v London Borough of Newham (2008) and McLaughlin and Harvey v Department of Finance and Personnel (2008). Whilst there may still be an argument that information need not be disclosed to the nth degree (e.g. sub-sub-sub criteria), in the light of the courts' decisions so far, the message seems to be: Play safe and don't rely on undisclosed factors.

In the current economic climate, it is to be expected that disappointed tenderers will continue to scrutinise award processes to ensure that the evaluation matrix which was ultimately used was made known to them at the outset.

The Need For Change

The credit crunch is also raising its own issues. In particular, it is throwing up the need for change. The economic climate may require changes to deal with the insolvency of the contractor; the wish to re-scope a project to change the mix between residential and commercial property or affordable and private housing; or the need to increase the price.

The need to change may arise before or after the contract has been awarded. Whilst employers no doubt expect European law to be concerned with pre-contract changes, they might be forgiven for thinking that, once they have successfully carried out the procurement, without breaching the relevant Regulations, they are home and dry. Not so! Further pitfalls for the unwary arise if and when changes are made to an existing, properly procured contract.

There are two overlapping factors in determining whether changes are permitted, both of which arise from the need for transparency and equal treatment. Firstly, are the changes so material that they effectively create a new contract which should be re-advertised? Secondly, were the changes identified in advance - by a variation clause which complies with the obligation of transparency?

Is There A New Contract?

The European Court of Justice gave clear guidance on the "new contract" (or material change) issue in June 2008 in Case C-454/06 Pressetext v Austria, a case which related to post-contract changes. The dispute concerned a contract of indefinite length for press agency services. Various changes made to that contract over a period of years were challenged by a rival press agency on the basis that they constituted the award of a new contract, which should have been re-advertised. The changes included relatively minor changes in the price, all to the detriment of the contractor: including the change to the Euro and an increase in a rebate from 15% to 25%. There were also two more controversial changes: the change of contractor for part of the work and the waiver of the right to terminate for a 3 year period.

The Court's guidance was that amendments constituted the award of a new contract when they were materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract. The Court went on to identify 3 situations in which an amendment can be material:

  • Where it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.
  • When it extends the scope of the contract considerably to encompass services not initially covered.
  • When it changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.

The Court considered that price changes, which were not anticipated in the original contract, could amount to breach of the principles of equal treatment and transparency. Nonetheless, the actual changes to the agreement were minimal and did not shift the economic balance of the contract in favour of the contractor.

The Court was also in no doubt that, as a rule, the substitution of a new contractor would be a material change, unless it was provided for in the initial terms of the contract. However, in this case, the facts were somewhat unusual. The new contractor was a wholly owned subsidiary of the original contractor. The original contractor controlled the new company and continued to assume responsibility for compliance with its contractual obligations. In these special circumstances, the Court considered that there was no material change and no new contract.

Finally, the Court also decided that the agreement to waive the right to terminate for 3 years was not a material change. It reached this conclusion on the basis that there was no suggestion that the parties would have considered terminating the contract over this period; that 3 years was not excessive in comparison to the time necessary to re-tender the contract; and it had not been shown that the waiver risked distorting competition.

Is The Variation Clause Transparent?

In English law, changes can be made to contracts provided that they fall within the scope of the variation clause. Wide variation clauses are very common in construction contracts. They frequently give the employer the right to add, omit or substitute work and to alter the design, quality or quantity of the work.

But do these wide amendment clauses comply with the European principle of transparency? A decision of the European Court of Justice about fruit and a decision of the Court of Appeal in relation to the provision of legal services suggest that such wide amendments clauses may breach this principle.

Case C-496/99P Commission v Succhi di Frutta (2004) concerned a tender by the Commission for the supply of fruit juice and fruit jams. At the time of tender, the successful contractors for the relevant lots were to be paid in apples. Tenderers had to identify in their tenders, the quantity of the fruit requested as payment. Tento Frutta tendered for Lot 1, offering in the alternative to be paid in peaches. This offer was accepted. Later, further fruits were introduced. Succhi di Frutta, who – as requested – had offered to accept payment in apples, started proceedings complaining of breaches of transparency and equal treatment. The Court decided that an employer was not entitled to amend the contract, after selecting the tenderer, unless it expressly provided for that possibility as well as for "the relevant detailed rules" in the invitation to tender. The Commission had not done this and Succhi di Frutta's complaint was upheld.

This was not just an obscure case about fruit, as the Court of Appeal found that the principles in the judgment had a rather wider applicability in R (on behalf of the Law Society) and Dexter Montague v Legal Services Commission (2007). The Law Society case related to a new contract between the Legal Services Commission and solicitors for the provision of legal aid services. The claim was that the unilateral power to amend in the contract contravened the principle of transparency.

The main power to amend was in Clause 13 of the contract, which provided, amongst other things, that the Commission had the right to amend the contract documents if and when it considered it necessary or desirable to do so in order to facilitate a reform to the legal aid scheme. The Clause also contained procedural requirements including obligations to consult and the requirement to give notice of amendments.

The Court of Appeal accepted that changes might become necessary or desirable during the life of a contract and that a contracting authority might need to reserve a power to amend However, it concluded that the power of amendment in this contract was so wide that it amounted to a power to re-write the contract and that it breached the requirement of transparency. It also decided that the European Court of Justice in Succhi di Frutta, when referring to the "relevant detailed rules", did not mean merely procedural rules i.e. consultation etc. The Court of Appeal also relied on the need in European law for the subject-matter of the contract to be sufficiently defined to allow a tenderer to understand what he was tendering for. The Court did not decide precisely what was required by the "relevant detailed rules" or when amendments would create a new contract. This was unnecessary, in the Court's view, as this contract was such an extreme case.

Where Does That Leave Procurements In The Credit Crunch?

At this stage, it seems unlikely that the credit crunch will cause the rise in procurement challenges to tail off. Failure to disclose full details of the evaluation criteria and their weightings has already been a successful ground of challenge. Employers should be aware that changes, not only during the tender process, but also after contract award may also be challenged. Although the Court in Pressetext decided, in that case, that changes in price and in the identity of the contractor did not create a new contract which needed to be re-tendered, the facts were unusual. The Court did make it clear that changes in the price and the contractor could, and often would, amount to material changes. Care will therefore need to be taken when making changes considered necessary as a result of the credit crunch to ensure that these changes do not transform the contract into something wholly different from that tendered. It is not yet clear how pragmatic the Courts will be in the face of more significant amendments than those in Pressetext or other wide amendment clauses. While the European Commission appears to be sympathetic to the current economic difficulties, for example in its statement of 19th December that the accelerated restricted procedure can be used for all major public projects throughout 2009 and 2010 in order to foster economies, this does not solve the difficulties inherent in making changes to contracts already let.

First published in Construction Law review 2009.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

For further information on how our members can assist you, please contact the Senior Clerks, John Munton and Nick Child, in the first instance, on +44 (0) 20 7544 2600. They and their teams of Clerks will be pleased to advise you on the member of Keating Chambers appropriate to your requirements.


To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.