Procurement Policy Note – Senior oversight of contract variations

Definitions

• Contract variations¹ reflect changes in scope and/or value of the contract which were not originally included as a contract option. For example, adding new but minor functionality to an ICT platform under construction, or increasing the quantity of goods ordered.
• Contract options are planned contract provisions allowing an entity to exercise an option , such as to buy additional quantities of the goods or particular ‘extra’ items or to extend the contract under pre-agreed terms. These are typically considered within the scope of the original procurement process and included in the initial approach to market and contract.
• Original contract value is the original reported value of the contract excluding the value of any planned contract options. For example: a 2 year $100,000 contract with 2 x $50,000 contract options for extensions would have an original contract value of $100,000. Any subsequent variations to the contract would not amend this original contract value.
• Total contract value is the proposed value of the contract including the original contract value and any contract variations and exercised contract options.

Italicised terms have the meaning given to them in the Commonwealth Procurement Rules (CPRs).

Further detail on managing contract variations and contract options, can be found in the Australian Government Contract Management Guide.

Purpose

This procurement policy note sets out the Australian Government’s policy on significant contract variations. Under the policy, procuring officials should seek to limit contract variations that increase the value of existing contracts where those increases were not considered as part of the procurement process and included in the original contract.

This approach reinforces good procurement planning, scoping, and contract management practices through tightening decision-making, ensuring contract variations occur only where they are clearly justified and essential. Consistent with the CPRs, maintaining value for money is the core requirement, and contract variations must therefore deliver a clear and defensible benefit to the Commonwealth. 

Scope and application

The accountable authority, or a delegated officer no lower than an SES Band 3 officer (or equivalent), of an entity subject to the CPRs must approve all contract variations that:

1. result in the revised total contract value being above the relevant procurement threshold AND:

   • between 1 July 2026 and 30 June 2027, increase the total contract value by more than 100% of the original contract value; OR
   • from 1 July 2027 increase the total contract value by more than 50% of the original contract value.

   OR

2. add contract options to the original contract.

Reductions in contract value or changes to a contract which do not change the contract value do not require a heightened level of approval.

The exercise of contract options (for example to extend the contract) does not require a heightened level of approval. However, any contract variation which seeks to add contract options requires Accountable Authority approval (or SES Band 3 or equivalent if delegated).

Officials are reminded that they should only execute contract options where there is a business need; and a value for money assessment has been undertaken.

Amendments to give effect to pricing terms included in the original contract, such as indexation and foreign exchange movements, are beyond the scope of this policy and do not require additional approval.

To support this policy, new AusTender reports will be available from 1 July 2026, which will identify, by entity, their proportionally largest contract variations for active contracts, providing greater transparency of each entity’s contract management activities.

Case studies

Example A: Significant contract variation

Contract A was initially agreed for $500,000 for ICT support services required for a year and ending in September 2026. The original contract did not include a contract option to extend.

Towards the end of the contract period, it is proposed that the support services be continued for another 18 months and the contract be increased by $750,000 to $1.25 million.

As the proposed contract variation is a significant change in scope (more than 100% increase in original contract value and above the relevant procurement threshold) the Accountable Authority (or SES Band 3 delegate or equivalent) will need to determine if this contract variation represents value for money. To streamline the process, the entity seeks S23 (3) approval from the Accountable Authority.

Example B: Significant contract variation

Contract B was initially agreed for $500,000 for labour hire services required for a year and ending in September 2026.

Due to external events, the entity requires additional non-APS staff for a limited period. The entity proposes to increase the original contract value by $600,000 to $1.1 million. As the proposed contract variation is a significant change in scope (more than 100% increase in value and above the relevant procurement threshold) the Accountable Authority (or SES Band 3 delegate or equivalent) will need to approve the contract variation. Once the approval is received, the delegate then provides S23 (3) approval.

Example C: Minor contract variation

Contract C was initially agreed for $200,000 for ICT support services required for a year and ending in September 2026. The original contract did not include a contract option to extend.

Towards the end of the contract period, it is proposed that the support services be continued for another 3 months and the contract be increased by $50,000 to $250,000.

As the proposed variation does not increase the total contract value by more than 100%, this contract variation can be approved by the delegate following the entity’s usual approval processes.

Example D: Minor contract variation below thresholds

Contract D was initially agreed for $50,000 for labour hire services required for a year and ending in September 2026.

Due to external events, the entity requires additional labour hire services for a limited period. The entity proposes to increase the existing contract by $60,000 to $110,000.

The proposed contract variation increases the value of the contract by more than 100 per cent, however as the proposed contract variation does not increase the value of the contract above the relevant procurement threshold, this contract variation can be approved by the delegate following the entity’s usual approval processes.

Example E: Significant contract extension within scope of the initial procurement and contract

Contract E was established as a two-year contract for $500,000 with an end date of September 2026. The contract included two contract options for extension, each for a further year at an additional cost of $250,000.

In planning the procurement, market research suggested that the deliverables may be required for a further two years subject to a value for money assessment outcome at each relevant end point and this information was included in the ATM.

Prior to the conclusion of the initial contract in September 2026, a value for money assessment is undertaken as the contract deliverables are still required. It is proposed that the first contract option to extend is exercised to increase the value of the contract to $750,000 and amend the end date to September 2027.

This was a planned contract extension and a value for money assessment was undertaken to determine if the contract option should be exercised. There has been no change in the scope of the procurement and this contract option to extend can be approved by the delegate following the entity’s usual approval process.

Example F: Adding contract extensions

Contract F was initially agreed for $200,000 for deliverables required within a year and ending in September 2024. The contract included two contract options to extend, both of which were used (adding a further $400,000 to the value of the contract).

Towards the end of the contract period, it becomes apparent that an unforeseen delay will require additional time to fully deliver on the contract and there are costs associated with that. It is proposed that the contract be varied to include a new contract option to allow the contract to be extended by a further 6 months and increase the value of the contract by $100,000 (once the contract option is exercised).

This proposal requires the Accountable Authority (or SES Band 3 delegate or equivalent) to approve the additional contract option. If approved, the exercising of the contract option may be undertaken by officials consistent with the usual procurement processes of the entity.

Example G: Multiple contract variations

Contract G was initially agreed for $30,000 for legal advice for a non-corporate Commonwealth entity.

During the contract period (late 2026), it becomes apparent that the legal advice has raised matters of significant complexity and will require additional work in the work order of $20,000. As the proposed contract variation does not increase the total contract value above the relevant procurement threshold, this variation can be approved by the delegate following the entity’s usual approval processes.

In early 2027, further analysis identifies that an additional $20,000 of advice is required. Although the total contract value ($70,000) is now more than 100 per cent greater than the original contract value ($30,000), because the total contract value is not over the procurement threshold, the contract variation can be approved by the delegate following the entity’s usual approval processes.

Later that year, the contract is increased by a further $60,000, taking the total contract value to $130,000. As this is now above the relevant procurement threshold and increases the total contract value to more than 100 per cent of the original contract value, the Accountable Authority (or SES Band 3 delegate or equivalent) will need to determine if this variation represents value for money.

Later the following year, the contract is again increased by $10,000. As the total contract value ($140,000) is above the relevant procurement threshold and more than 100 per cent of the original contract value, the Accountable Authority (or SES Band 3 delegate or equivalent) will again need to determine if this variation represents value for money.

By way of comparison, a prescribed corporate Commonwealth entity (CCE) would not require Accountable Authority (or SES Band 3 Delegate or equivalent) approval for this example unless the total contract value was subsequently increased to above the prescribed CCE procurement threshold of $400,000.

¹ The Australian Government Contract Management Guide provides further guidance on appropriate considerations when seeking to vary a contract.