High Court rules on in-term modification to public contract – Azeem Suterwalla and Antonia Fitzpatrick act for the successful defendant

On Friday 19 May, the High Court handed down judgment in James Waste Management LLP v Essex County Council [2023] EWHC 1157 (TCC). The case concerned whether an in-term modification to the defendant Council’s Integrated Waste Handling Contract was permissible under the Public Contracts Regulations 2015 (“PCR”).

Waksman J’s detailed judgment, dismissing James Waste’s claim, will be of wider interest to public procurement lawyers.

It clarifies important principles regarding when an in-term modification to a contract will be “substantial”, i.e. impermissible, within the meaning of Reg 72(8) PCR, first set out in the CJEU case Pressetext, and previously considered only in part by domestic Courts, in the Edenred litigation and Gottlieb v Winchester County Council [2015] EWHC 231.

Waksman J held that:

• The “gateways” to modification under Reg 72(1) should be interpreted narrowly, because they are derogations from the general rule that in-term modifications are impermissible (Reg72(9)).
• The fact that those gateways are derogations does not, however, entail that the authority invoking them bears any reverse burden of proof.
• A “considerable” extension of scope (Reg72(8)(d)) should be interpreted in a common-sense way, notwithstanding that the gateways to modification are to be interpreted narrowly. Waksman J rejected James Waste’s submission that any extension with a value more than (or not much more than) the operative threshold for the engagement of the PCR was “considerable”.
• For Reg 72(8)(b)(ii) to be satisfied, it is sufficient for a claimant to show that there is a real (as opposed to fanciful) prospect that another tenderer would have won the modified contract, because of the conditions newly introduced. It is not necessary, however, to show that the new conditions would have entailed the acceptance of a different tender.
• For Reg 73(8)(c), requiring a change of economic balance of the contract in favour of the contractor, to be satisfied, the appropriate yardstick by which to judge a price increase is whether it constitutes “reasonable compensation”, irrespective of any change in the contract payment mechanism.

Waksman J also provided guidance on the “clear, precise and unequivocal” review clause gateway in Reg. 72(1)(a) and held that, in respect of Reg. 102, a civil penalty could not be made against a contracting authority where a declaration of ineffectiveness could not be made.

The full judgment is available here.

Monckton’s Azeem Suterwalla and Antonia Fitzpatrick acted for the successful Council.