How 'known risks' will work under the UK Procurement Act 2023

The Procurement Regulations 2024 require public authorities to identify in an initial advertisement for a contract opportunity any "known risks" to successful delivery of the contract. 

The Procurement Act 2023 allows future variations to the contract if one of those known risks materialise.

Why is the authority publishing known risks?

A "known risk" is a risk that the contracting authority considers could endanger the satisfactory performance of the contract, but owing to the nature of the risk, it cannot be addressed in the contract being awarded.

The 2024 regulations, made under the Procurement Act 2023 earlier this year, require that a tender notice (or transparency notice in the case of a direct award) include a list of these risks (regulation 18(2)(z)).

In the event that one of those identified known risks materialises during the contract, the authority and contractor will be able to utilise a "safe harbour" under the Procurement Act to modify the contract in order to deal with the consequences.

How does the 'known risk' exemption work?

The contracting authority must describe in the tender notice how the risk identified meets the description of a known risk and must also make reference to the possibility of modification under the new exemption.

A modification to the contract will then be permitted if all of the below apply:

• A known risk has materialised for a reason other than as a result of any act or omission of the contracting authority or supplier.
• As a result of the known risk arising, the contract cannot be performed to the satisfaction of the contracting authority.
• The modification proposed goes no further than necessary to remedy the known risk.
• The award of a further contract, rather than modification, would not be in the public interest.
• The modification does not increase the estimated value of the contract by more than 50%, ignoring (for the purpose of estimating the value of the contract) the fact that the risk has materialised.

Subject to minor exceptions, it will also be necessary to publish a contract change notice (CCN) at the time of the modification, including an explanation of why the modification is within scope of the known risk identified in the tender or transparency notice.

Supplier input and strategy

As the transparency notice is to be published before awarding a contract under direct award provisions, it will be too late to identify known risks if left to the negotiation stage of a procurement process.  Suppliers may want to proactively suggest known risks as part of pre-market engagement, prior to the tender notice being published.

Suppliers and authorities may also want to consider how the ability to modify a contract in the event a known risk materialises will affect price, and whether for example the pricing of a premium can be avoided.

Osborne Clarke comment

The "materialisation of known risk" safe harbour is an expansion of the grounds for lawful modification of public contracts that will give more comfort to parties dealing with future uncertainties.   

Successful reliance on the safe harbour requires careful consideration in advance to ensure the known risks are accounted for within the tender and/or transparency notice. 

Given the post-modification publication requirements – the CCN – other suppliers will have visibility of changes made in reliance on the safe harbour, and there will be a risk of challenge if a competitor perceives that it has been used improperly.

As the go-live date approaches for the Procurement Act 2023, we expect more guidance to be released, which should provide welcome clarity on how the government intends the inclusion of known risks in the notices and the safe harbour to work in practice.

Please visit our "Navigating the changes under the Procurement Act" microsite for our insights on the new regime.

 If you would like to discuss any of the new developments raised in this Insight, please get in touch with your usual Osborne Clarke contact, or one of the experts listed below.