Making changes to an established contract is called a contract variation. Contract variations can be minor administrative changes such as a change of address or they can be substantial changes that affect the length, price or deliverables under the contract.
An entity should not seek or allow a contract variation where it would amount to a significant change to the contract or significantly vary the scope of the contract if it could reasonably be determined that:
a. other potential suppliers may have responded differently to the amended contract scope in the tendering process which may have produced a different value for money outcome or
b. the variation may compromise the original procurement's value for money assessment.
Entities may allow minor contract variations, where these do not negatively affect the achievement of value for money in the contract.
The need for a contract variation may arise due to:
• unexpected events (including delays in delivery)
• changes in technology
• changes in legislation or policy
• minor changes to your entity's requirements
• changes in key personnel
• changes in delivery method or location
• changes to milestone delivery dates
• fluctuation in demand for the goods or services
• other factors that affect contract delivery.
Before initiating or agreeing to any variation the Contract Manager should determine | |
a. | Whether the variation is needed. |
b. | The effect of the proposed variations on delivery. |
c. | What effect, if any, the proposed variations will have on contract price. |
d. | The effect of the proposed variations on other terms and conditions of the contract. |
e. | Whether the variation will transfer or create risk. |
f. | The details of the variation and whether it may amount to unfair treatment of unsuccessful tenderers who are denied an opportunity to tender for the changed requirement. |
g. | Whether the variation will affect the original value for money assessment. |
h. | What consequential changes may be needed to implement the variation? |
i. | Whether the variation has any follow on implications. |
The variation process you should follow is usually covered in the contract.
Either the procuring entity or the supplier can request a contract variation, but it must be agreed by both parties to be legally binding. A variation can be implemented without being formalised in writing. So be aware of what you say during meetings and informal discussions to ensure you do not accidentally vary the contract (see the information in Section 2.3 Unintentional variation or waiver through conduct).
You need to document your decision-making process for a contract variation to ensure your position is defensible and the contract still presents value for money. You should discuss any proposed variation to a contract with the supplier, document the variation in writing and ensure both parties sign as evidence of agreement to the changes (usually through a Deed of Variation).
Before finalising a variation, find out what approvals or authorisations you need to get, as well as the appropriate delegate - particularly if the variation will result in a change to the overall value of the contract. Consult your Accountable Authority Instructions (AAI's) or your central procurement area to identify the amount that requires approval (the variation amount or the whole new contract amount). Even if the delegate only needs to approve the amount of the variation, it is good practice to detail the new amount of the whole contract (the original contract value plus any variations to date plus the current variation). You must also record any financial changes in your entity's Financial Management Information System (FMIS).
Once you complete the contract variation, inform stakeholders about changes to the contract so they have a clear understanding of what goods or services to expect under the varied contract.
Your entity must report contract variations on AusTender within 42 days of varying the contract if valued at or above the CPRs reporting threshold of $10,000. You do not need to report multiple variations that are individually below the reporting threshold even if the combined total is valued at or above the reporting threshold, although you may choose to do so to correct the contract value on AusTender.
For longer term or more complex contracts, you should keep a 'master version' of the contract that includes any contract variations in mark up. This is important, especially when there has been several variations. Maintaining a 'master version' means, you have a copy of the latest version of the contract, as well as a record of the evolution of the contract.
You may want to consider using the BuyRight tool (available at https://www.finance.gov.au/government/procurement/buyright) to guide you through the steps for a contract variation.