Phased contract with optional stages
A phased contract commits the buyer to a first stage and keeps later stages as priced options it may never exercise. How to price them and what to check.
Updated on September 5, 2026
A phased contract is a public contract split into a firm first phase, which the buyer commits to, and one or more optional phases it may or may not instruct later. It lets a buyer competitively procure a whole project once, when completing it depends on funding, a planning consent or the result of an earlier stage. UK documents call these options, optional stages, provisional sums or gateways rather than tranches.
How it works
Nothing in the Procurement Act 2023 prevents a contract from containing options, and both NEC and JCT provide mechanisms for phased or sectional work. Each phase must be a coherent package, and its scope, price and programme are fixed when the contract is signed. The supplier is bound for all of it; the buyer is committed only to the firm phase.
An optional phase is triggered by an express instruction from the buyer, given within the period stated in the contract. If it is not exercised, or is exercised late, the contract may provide compensation, but only where it says so. UK contracts frequently do not, so the risk of an unexercised option normally sits with the supplier.
For threshold purposes the estimated value includes every phase, firm and optional, plus any extension. A works project whose firm phase is small but whose total exceeds £5,193,000 including VAT is therefore an above-threshold procurement (verified 2026-09-05). Later, any change beyond what the contract allows may require a contract change notice, or a fresh competition if it is substantial.
What it means for a bidder
A phased contract offers visibility over several years, with no guarantee on the optional part. The pricing risk is the point to watch: prices are fixed when you bid, while an optional phase may not start for a year or two. An indexation or fluctuation clause is essential, and so is a clear window after which an unexercised option lapses.
Check the notice period for exercising each option, whether any compensation applies, and whether the buyer can simply walk away. On the form of tender each phase is priced separately, so keep the pricing consistent between them: an obviously front-loaded firm phase invites questions and can make the bid look unbalanced.
Example
Mirval District Council is renewing street lighting across its twelve parishes. The contract has a firm phase of £700,000 for the four most urgent parishes, plus two optional phases of £500,000 each, conditional on grant funding. The total of £1,700,000 stays below the £5,193,000 works threshold, so the council runs a below-threshold exercise advertised on Contracts Finder. A twenty-strong electrical contractor wins, and the first option is exercised a year later.
Frequently asked questions
Can the buyer never exercise the options?
Yes. It is not obliged to. Only a compensation clause written into the contract protects the supplier.
Can the price of an optional phase be renegotiated?
No, unless an indexation or fluctuation clause allows it. Prices are set for all phases when the contract is signed.
How does this differ from a framework?
A phased contract covers defined packages priced in advance. A framework covers repeat requirements whose quantities are unknown.