Renegotiating and varying local authority contracts

Written by: John Houlden and Joe Papineschi | Published:

Councils must tread very carefully when changing the terms of waste management contracts in order to avoid upset, or worse. John Houlden, partner at Burges Salmon, and Joe Papineschi, director at Eunomia Research & Consulting, explain the technical and legal issues.

The course of a public service contract rarely runs entirely smoothly. Disasters may be rare – though can be well publicised when they occur. Making sure that contracts, especially long-term ones, deliver as expected long after the ink has dried can be challenging. Recent changes in procurement law may offer councils some additional tools to help bring out the best from their contracts.

In waste management, regulations, targets and industry norms have changed in the past decade, while recyclable materials markets have collapsed and the resources available to councils have been cut dramatically. Now the Circular Economy Package promises to shake up the status quo once again. Yet collection contracts typically have a duration of at least seven years (with an option to extend), and treatment contracts can be longer.

Troubled contract

It’s little wonder that authorities find themselves in situations where contracts aren’t delivering what they need, either in terms of service or savings.

Faced with a troubled contract, councils are rightly cautious about the procurement law implications of negotiating changes. The risk is that a change – or at least, a change that the contractor is prepared to agree to – might be perceived to favour a contractor and be seen as a material change. Where there is a material change, the contract is considered to be new subject to OJEU competition.

Failure to compete could therefore be a breach and any amended contract rendered void.

Regulation 72 of the Public Contracts Regulations (PCR) 2015 offers broader powers to change contracts. Strictly speaking, these apply only to contracts let under the new regulations, which came into force in February 2015, and the courts may still be swayed when assessing how a change to a contract entered into under the previous regulations should be addressed.

However, the real risks of change should not be overstated. Success for local authorities depends on understanding and making use of their powers and making sure that they have a strong negotiating position. That can mean having something to trade, or even the willingness to walk away, if terms cannot be improved.

Despite the plentiful cases of renegotiation, actual procurement litigation in the sector is low and most have been settled quickly.

That’s partly down to the care that councils take over how contracts are procured and run.

Also, contractors in the waste sector, with an eye to their reputation and the next tender, have not historically been inclined towards litigation.

It’s clearly better to minimise the risks of poor performance during the tender process than to try to tackle it once a contract is in place. Getting the award criteria right is vital and changes to the evaluation regime under the PCR mean that councils must consider how they design and undertake evaluation to ensure the delivery of objectives. This will require time, planning and preparation.

Another change addresses a common complaint about procurement procedures and could help to improve outcomes. Historically it has been difficult for a public body to take account of the negatives in a bidder’s track record. The PCR now allows authorities greater rights to exclude bidders where they have shown “significant or persistent deficiencies in the performance of a substantive requirement” of a public contract which has led to early termination of that contract, damages or “other comparable sanctions”.

Potentially a very wide-ranging power, this should give contractors and councils pause for thought. If a contract is running into difficulties, how the situation is handled may not just have a local impact, but could affect the contractor’s future prospects, incentivising them to resolve issues quickly and amicably. It also raises the stakes when contract sanctions are being considered and may make such actions more contentious.

Re-municipalisation

Either following termination of a distressed contract or driven by the need for flexibility to manage shrinking budgets, we have advised on a number of recent high-profile re-municipalisation of waste services. Several of these have made use of local authority companies as the vehicle to make the change. New provisions in the PCR develop and set out the concept of in-house contractors originally established by the European Court of Justice in the Teckal case. Structuring the company properly is key to ensuring that awarding it work is compliant with the PCR.

The new rules need to be considered carefully by councils letting and managing waste contracts, and their interpretation is far from simple. However, properly understood, they give councils greater scope than ever before to make sure that waste contracts really deliver. RWW

The co-authors can be contacted at john.houlden@burges-salmon.com and joe.papineschi@eunomia.co.uk

- Burges Salmon is holding a one-day event on Thursday, 19 May, entitled 'Municipal waste contracts: getting the service you need'. For more details, visit http://www.burges-salmon.com/seminars/14858.aspx


This material is protected by MA Business Ltd copyright.
See Terms and Conditions.

Comments
Name
 
Email
 
Comments
 

Please view our Terms and Conditions before leaving a comment.