A framework is an agreement with suppliers to establish terms governing contracts that may be awarded during the life of the agreement. In other words, it is a general term for agreements that set out terms and conditions for making specific purchases (call-offs).
Frameworks are freestanding documents which set out agreements to provide goods and/or services on specified terms. They are used in situations where the parties anticipate doing business with each other in the future, but they want to agree the terms now and on which the A framework agreement is an ‗umbrella agreement‘ that sets out the terms (particularly relating to price, quality and quantity) under which individual contracts (call-offs) can be made throughout the period of the agreement.
In framework arrangements, there is no contractual commitment for a particular quantity, nor is there even any commitment to purchase at all. Usually, the framework arrangement includes any agreed specifications, prices, delivery arrangements and terms and conditions of contract that would apply to any contract entered into in the future. In a framework agreement, however, you
would have a contractual commitment to purchase a particular quantity or value of goods and/or services although this could be set out as a specified range that is no less than the minimum specified and no more than the maximum specified.
Framework arrangements or agreements can be fixed term, fixed quantity or ―insurance‖. Fixed term arrangements usually give an estimate of the goods and/or services to be supplied. Fixed quantity arrangements give greater reassurance that the estimated quantities of goods and frequency of services will be required. Insurance arrangements deal with services with a fixed annual cost regardless of the frequency of the service required.
Call-offs or call-of contracts are the names commonly given to the purchase orders submitted against framework arrangement or agreement. The purchase orders (call-offs) are offers made by the purchaser. The supplier then has the choice of accepting the offers and supplying the goods/services ordered according to the terms and conditions already agreed in the framework agreement. If the supplier is no longer willing to abide by the terms agreed in the framework agreement, he can reject the offer no contract will be formed.
What are the benefits of a framework over a simple contract?
A framework agreement will generally allow a purchaser more flexibility around the goods or services contracted for under the framework, both in terms of volume and also the detail of the relevant goods and services. A multi-supplier framework allows a contracting authority to select from a number of suppliers for its requirements, helping to ensure that each purchase represents
What is commonly procured using framework agreements?
Framework agreements are typically used where the authority knows they are likely to have a need for particular products or services, but are unsure of the extent or schedule. So framework agreements are commonly set up to cover things like office supplies, IT equipment, consultancy services, repair and maintenance services etc.
How are call-offs awarded under a framework agreement?
If the framework agreement is awarded to one provider, then the purchasing authority can simply call-off the requirement from the successful supplier as and when it is needed. Where the framework is awarded to several suppliers, there are two ways in which call-offs might be made:
- Where the terms laid out in the framework agreement are detailed enough for the purchasing authority to be able to identify the best supplier for that particular requirement, then the authority can award the contract without re-opening competition.
- If the terms laid out in the framework agreement are not specific enough for the purchasing authority to be able to identify which supplier could offer them best value for money for that particular requirement, a further mini-competition would be held between all the suppliers on the framework agreement who are capable of meeting the need.
What are the advantages of framework agreements?
1. The main advantage to a purchasing authority of using a framework agreement is that they do not have to go through the full tendering process every time the requirements arise. Having to go through the tender procedure once rather than several times, will
obviously reduce tendering costs. It also means there is less downtime between identifying the need and fulfilling it, which considering how lengthy the tendering process can be, could be a considerable benefit. There are also further potential savings to the purchasing body because of economies of scale, which may prompt suppliers to offer more competitive prices.
2. Secondly, the reduction to tendering costs will also apply to suppliers, as going through the tender procedure is costly and time-consuming for suppliers too.
3. Obviously, the main advantage to suppliers of being on a framework agreement is the chance of being awarded valuable business opportunities.
Benefits of using framework agreements
There are several reasons why the use of multi-user Framework Agreements in procurement is a good idea:
- Frameworks are a pre-competed route to market providing a vehicle to centralize procurement spend.
- Shared procurement expertise and resource;
- Shared risk and contract management;
Reduced administrative burden in terms of:
- The time and cost compared to running a full procurement procedure each time (and helps to ensure legal compliance).
- The requirement has been advertised and capable suppliers have been identified through competitive procurement, so at mini-competition there may be fewer tenders to evaluate for each requirement – particularly if the framework is divided into distinct lots.
- At mini-competition it should be easier to compare tenders, particularly where the framework is divided into distinct lots, because the products and services making up those lots will normally have been defined and categorized when the framework
- Flexibility: use of framework agreements is not mandated and authorities are free to use framework agreements where they provide value for money or to go elsewhere if they do not (but when taking into consideration the potential savings of going elsewhere you would of course need to factor in the potentially considerable cost of running your own procurement exercise).
- Security of supply (on multi-supplier agreements) – if one supplier on a framework runs into difficulty there would still be other suppliers who are capable of delivering the requirement.
Aggregation of demand:
- Larger volumes are more attractive to suppliers;
- Larger volumes can achieve lower unit costs- not just when the framework was established, but also at the call off stage, when authorities are able to centralize their procurement spend with others who have the same requirement and therefore can commit
to a higher volume of spend than if they were calling off from the framework individually;
- Smaller organizations working together will gain benefits usually only achievable by large organizations;
What are the disadvantages of framework agreements?
A disadvantage of a framework agreement for a purchasing authority is that:
1. they are relatively unresponsive to change – there may be new suppliers and/or new solutions within the market that were not included when the framework agreement was initially set up.
2. Furthermore, framework agreements tend to apply a ‗one size fits all‘ approach, which might make it difficult for authorities to satisfy their own procurement objectives.
3. However, most framework agreements do not place any obligation on the purchasers to actually buy anything. Therefore, if the requirement doesn‘t fit into the framework agreement or they think they can achieve better value for money not using it, then they
can go elsewhere.
4. They are “closed systems”, i.e. once a framework is established no new suppliers can be admitted and so can present barriers to new market entrants for the life of the agreement.
5. Re-opening competition can be considered onerous if the framework agreement has been poorly structured (e.g. a large number of suppliers in a single lot where their capability may be difficult to establish)
6. As a customer of a framework agreement you are reliant upon how the Contracting Authority has established and manages the framework agreement.
7. There may therefore be issues around supplier management depending on the degree to which you share responsibility for running the resulting contract with the owner of the framework agreement. That said, there should also be efficiency benefits to be
realized in sharing the burden of management of the framework agreement and resulting contract.
8. Where anticipated volume levels are uncertain this may lead to suppliers building in a risk premium for this uncertainty thus potentially reducing value for money. This risk can be mitigated by coordinating procurement spend.