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Termination clauses and the PCR 2015

Traffic lights iStock 000003944828XSmall 146 x 219LexisPSL Local Government, in partnership with Mark Bassett of Dentons UKMEA LLP addresses the question of whether contracting authorities need to redraft their standard termination clauses for contracts subject to the Public Contracts Regulations 2015.

If a contracting authority’s standard form contracts do not already contain provisions which allow for termination in the circumstances specified in regulation 73 of the Public Contracts Regulations 2015 (PCR 2015), SI 2015/102 (PCR 2015, SI 2015/102, reg 73), then they should be changed.

PCR 2015, SI 2015/102, reg 73 requires that contracting authorities are able to terminate contracts where:

- the contract has been subject to substantial modification

- where the contractor was, at the time of the contract award, subject to grounds of mandatory exclusion (meaning that it should never have been awarded the contract), and

- where the Court of Justice of the European Union has declared that the contract award involved a serious infringement of the public procurement rules (under Article 258 of the Treaty on the Functioning of the European Union (TFEU))

For public contracts which do not include express provisions to this effect, then a power for the contracting authority to terminate in the circumstances set out above will be implied, including (at least where there has been an unlawful substantial modification) to contracts awarded prior to 26 February 2015. However, it is worth keeping in mind that:

  • contracting authorities are under an obligation to include these provisions—and should not simply rely on the implied terms, and
  • a termination right alone leaves uncertain matters of compensation to the contractor and could result in a dispute.

There are no reciprocal termination rights implied into the contract in favour of the contractor. In many cases the extent to which the contractor objects to these provisions will depend on the consequences of termination. Where the contractor will be 'made whole', with compensation covering loss of profits and sunk costs, it is unlikely to object to the right being added. Where the right is added with only partial compensation (or no compensation) the contractor is likely to object and resist the provisions. Greater certainty can be achieved through the inclusion of specific drafting.

This article, produced in partnership with Mark Bassett of Dentons UKMEA LLP was originally published in LexisPSL Local Government. If you would like to read more quality content like this, then register for a free 1 week trial of LexisPSL.