The Modification Test: Keeping Contract Change Inside the Rules

Long-term public contracts are rarely static. Inflation adjustments, service redesign, organisational restructuring and shifting policy priorities all generate pressure to amend the agreement rather than re-let it. Variation clauses exist precisely to absorb that pressure, and most well-drafted contracts contain one. The difficulty is that a variation clause answers a contractual question, not a procurement one. A change may be entirely permissible under the contract and still be unlawful without a new competition.

That distinction is where authorities and suppliers most often come unstuck. The clause is read as a permission slip, the paperwork is confined to the deed of variation, and the procurement analysis is either assumed or left until audit. Since the Procurement Act 2023 regime took effect, the analysis has become clearer in statute but no less demanding in practice.

Two questions, not one

Every proposed change should be tested twice, and in sequence.

First, the contractual question: does the agreement permit this change, through this mechanism, agreed by these people? That requires attention to the scope of the variation clause, any change control procedure, delegated authority and the formalities of execution.

Second, the procurement question: does the change fall within a permitted modification, or is it a substantial modification that the law treats as a new contract requiring competition?

A negative answer to the first question does not solve the second, and a positive answer to the first does not resolve it either. Authorities that collapse the two into a single review tend to produce a variation that is contractually sound and procedurally exposed.

The statutory gateway

The Procurement Act 2023 provides that a modification which amounts to a substantial modification is treated as a new contract. In broad terms, a modification is substantial where it renders the arrangement materially different from what was originally advertised and awarded — for example by changing the scope or nature of the contract, altering the economic balance in the supplier's favour, or extending the arrangement in a way that would have allowed a different supplier to be appointed or a different bid to succeed.

Outside that territory, Schedule 8 sets out the permitted modifications. The categories most frequently relied upon are:

• Low-value change. The modification falls below a specified proportion of contract value (10 per cent for goods and services, 15 per cent for works) and below the applicable threshold, without altering the nature of the contract.
• Unforeseen circumstances. A diligent contracting authority could not have foreseen the need for the change, the modification is strictly necessary, the overall nature of the contract is unaffected, and any price increase stays within a cumulative ceiling.
• Additional goods, services or works. Provided the change does not alter the overall nature of the contract and remains within the cumulative 50 per cent limit.
• Economic or financial changes. For example indexation or a price revision mechanism expressly contemplated by the contract.
• Supplier substitution. Narrowly drawn grounds covering insolvency, corporate restructuring and similar events.
• Non-substantial change. Where the modification makes no material difference to the contract as awarded.

Two practical points follow. First, the conditions are cumulative, not alternatives: satisfying the value test does not excuse a change of scope. Second, permitted modifications are not invisible. A contract change notice will generally be required on the Central Digital Platform, and the timetable for publication is not generous. The modification may be lawful and still generate a compliance finding because the notice was late or incomplete.

The failure modes worth watching

Most modification problems are not the product of a single dramatic decision. They accumulate.

Cumulative drift. Each individual change sits comfortably under the threshold. Taken together, they exceed the permitted value, or they slowly reshape a service that was procured on a different specification. The Act requires aggregation, and a register that records only the current variation will not demonstrate it.

Flexibility dressed as scope. Wording such as "and related services as required" is not a licence to add adjacent service lines. The question remains whether a different supplier could have won the original competition had the enlarged scope been advertised.

Supplier substitution by the back door. Novation to an affiliate or a group company is not automatically covered. The substitution grounds are specific, and TUPE, pensions and security-of-supply consequences usually arrive at the same time.

Value miscalculation. Modifications should be valued on a whole-life basis, including options, extensions and any consequential revenue, rather than on the annual contract value.

Thin records. A variation signed without a documented options appraisal is difficult to defend even where the outcome was correct.

Building an approval trail that holds

The governance answer is unglamorous and effective.

Maintain a single modification register covering every change, including those made under delegated authority. Record the running total against the relevant value caps and the original contract value on which the percentages are calculated. Require legal sign-off at the point the change is scoped, not at the point the document is ready for signature — by then the commercial position is usually fixed and the room for manoeuvre has gone.

Confirm that the officer approving the change holds the delegated authority for the resulting contract value, not merely the value of the increment. Where the change touches service specification, key performance indicators or risk allocation, take the approval through the same route as the original award.

Finally, diarise the notice publication at the moment of approval. The obligation should sit with a named person, and the notice content should be drafted alongside the variation rather than reconstructed afterwards.

Drafting discipline

Good contracts make good modifications easier. A change control procedure that identifies who may propose, who may agree and what evidence is required removes much of the ambiguity that leads to disputes later. Pricing mechanisms for additional work should be specified in advance rather than negotiated under pressure.

When drafting the variation itself, state expressly which provision of the contract and which permitted ground is relied upon, and record that the overall nature of the contract is unchanged. Avoid side letters and informal confirmations by email; they undermine the register and may create obligations that no one has authorised. Attend to execution formalities, including whether a deed is required.

A five-question gate

Before any variation is signed, the following should be answerable on the file:

1. Is the change within the scope of the original contract and permitted by the variation mechanism?
2. Would the enlarged arrangement have allowed a different supplier to be appointed, or a different bid to succeed?
3. Which permitted ground applies, and what is the cumulative value once aggregated with earlier changes?
4. Is the decision recorded, legally reviewed and approved by someone with the right authority?
5. Has the contract change notice been prepared and scheduled for publication?

A variation is not a shortcut around competition. It is a defined derogation from it, available on conditions that must be evidenced. Treating each change as a small procurement decision in its own right — with the same discipline applied to scope, value and record — is what keeps the arrangement on the right side of the line.