PRACTICING FRAMEWORK AGREEMENT

Er. Satya Narayan Shah

B.Sc. in Mechanical Engineering (India)
MS in Manufacturing Engineering &
Management (UK)
National Instructor for Public Procurement
System (PPMO)
April, 2014

Background:
A Public entity may select one of the contract types for the procurement purposes as
stated in the Clause 20 of Public Procurement Regulation 2007 (PPR 2064) which reads
as follow.
“Selection of Procurement Contract: (1) A Public Entity shall, select a procurement
contract after the selection of procurement method in regard to any procurement
proceedings by which the procurement is to be made, out of the contracts as
referred if goods or other services are to be procured in Rule 21, if a construction
work is to be procured in Rule 22 and if consulting service is to be procured in
Rule 23.
(2) The procurement contract under Sub-rule (1), shall have to be selected
by taking the following matters into account:-
(a) The type and quantity of procurement,
(b) The likelihood of re-procurement of the same nature,
(c) Distribution of risk between the Public Entity and the supplier,
construction entrepreneur or consultant and other party, and
(d) Method of supervising procurement contract.

The types of the contracts have been listed in the schedule- 3, 4, and 5, for “Procurement
contract of goods or other services”, Procurement contract of construction work,
Procurement contract of consultancy service respectively. In the schedule 3 (b) it has been
mentioned about the Framework Contract as
“Structural or unit rate contract: - A framework or unit rate contract may be concluded
to make arrangements for obtaining the goods or other services set out in the
procurement contract at the time when the demand is made by the Public Entity from one
or more suppliers as per the rate and terms and conditions set forth in the procurement
contract.
This contract shall have to mention the minimum and maximum quantity of the goods or
other services to be procured by the Public Entity.
The period of this contract shall not generally be more than that of one year”.

Though this provision in the PPR prescribes the utilisation of the Framework Contract at
the suitable situations, detail procedures/directives have not been provided by the state
regulatory body.

Introduction:
The success of any procurement highly depends on the procurement strategy. Once
detailed objectives have been agreed, and using the current status as a basis, a strategy
can be developed which outlines how the objectives are going to be achieved. This should
include an implementation plan which identifies activities, timeframes and responsible
officers. Selection of contracting process is a part of strategy under the identification of
activities.
The purpose of identifying and selecting an appropriate procurement strategy is to find
the best way to obtain the result to satisfy the needs of the end users. A procurement
strategy includes: (a) choice of the type of arrangement and/or contract to be concluded;
(b) choice of the procurement method; (c) type of competition to be adopted to purchase
the required goods/services/works.
To select a procurement strategy, the procurement officer will have to consider factors
such as the PPR, procurement procedures of the organization, delegation of authority,
financial thresholds, internal clearance/approval procedures and corresponding
administrative time frames, the type of procurement (goods, services or works), the
complexity or the specificity of a requirement, the market conditions, already existing
arrangements and/or contracts.

The procuring entities need to procure goods, works and/or services very frequently to
achieve the project objectives. More often similar items are procured in repetitive manner
following the procurement processes (PPA/PPR), which consequently involves more
time, and more tendering costs. Framework agreement procedures are often used to
procure the subject matter for which a procuring entity has a need over a period of time or
at a time in the future, but does not know the exact quantities, nature or timing of its
requirements.For an example, a project procures office supplies more than one time
during the same fiscal year due to unpredictable consumption of those items. Every time a
procuring entity has to go for the tendering process spending more time and money on the
process. Example also includes commodity-type purchases, such as stationery, spare
parts, information technology supplies and maintenance, where the market may be highly
competitive and where there will normally be regular or repeat purchases for which
quantities may vary. This is also suitable for the purchase of items from more than one
source, such as electricity as well as the items whose need is expected to arise in the
future on an urgent or emergency basis, such as medicines. This type of agreement can
also be considered as a suitable tool, where surety of supply is highly required like in the
case of specialised items requiring a dedicated production line. The framework agreement
establishes the terms upon which purchases will be made.

What is a Framework Agreement?

The Framework agreement, often known as an umbrella agreement, is an agreement
which is reached between two parties to cover a long-term collaborative arrangement.
Framework agreements are used typically where an employer has a long term programme
of work in mind and is looking to set up a process to govern the individual supply
packages that may be necessary during that framework term. UNICITRAL Model Law
defines the Frame work Agreement as below;
“ An agreement or other arrangement between one or more contracting authorities and
one or more economic operators which establishes the terms (in particular the terms as to
price and, where appropriate, quantity) under which the economic operator will enter into
one or more contracts with a contracting authority in the period during which the
Framework Agreement applies”.
The Framework Agreements allow an employer to instruct another party to carry out
works or provide services, by reference to pre-agreed terms, over a pre-agreed period of
time. It provides a mechanism for awarding the project in a straightforward manner.
However, it is not unusual for an employer to enter into a number of identical framework
agreements with a number of different contractors or suppliers. Those contractors and
suppliers may also enter into their own framework agreements with subcontractors or
others. Thus the framework agreement is not intended for use with a single stand-alone
contract but it is designed for use where a number of similar sets of works or services
may be required of the same provider.
The framework agreement itself may be a contract, but only if the agreement places an
obligation to purchase. In this case, it is treated like any other contract. However, a
framework agreement is more likely not to be a contract itself, but merely an agreement
about the terms and conditions that would apply to any order placed during its life. In this
case, a contract is made only when the order is placed and each order is a separate
contract.

Figure-1
Framework Agreement Process flow:

Start Need
Identification

Review Contract/ Are there existing contracts/ Determine

No
Framework Framework Agreements which strategy
Agreement and may meet the need
contact contractor

Is there
PAA/PPR and Directives to Set up Framework commitment
use Framework Agreement No
agreement

Yes

Consult guidelines and

Directives on setting up
other relevant document
Framework Agreements
on awarding contracts

Single Supplier Framework Multiple Supplier

Agreement Framework Agreements

Methods of Call-off

Direct Meets Mini-

Ranked Rotation
Purchase Requirements competition

Figure-2

Advantages of Framework Agreements:

The main advantage to a purchasing authority of using a framework agreement is that

they do not have to go through the full PPA/PPR tendering process every time the
requirements arise. Going through the tendering procedure once rather than several
times, will obviously reduce tendering costs. That also means there is less downtime
between identifying the needs and fulfilling it, which is lengthy process in the Public
Procurement, could be a considerable benefit. The reduction to tendering costs will also
apply to suppliers, as going through the tender procedure is costly and time-consuming
for suppliers too. Obviously, the main advantage to suppliers of being on a framework
agreement is the chance of being awarded valuable business opportunities. This leads to
further potential savings to the purchasing body because of suppliers to offer more
competitive prices.
Some of the main potential benefits of framework agreement procedures in terms of
Procurement practice can be listed as follows:
a) Administrative efficiency: where the procedure is used for repetitive
procurements, it can be administratively efficient because of the effective
aggregation of a series of procurement proceedings. Many steps are under taken
once instead of doing for each of a series of procurements e.g. drafting terms and
conditions, advertising, assessing suppliers’ or contractors’ qualifications, and
examining, and in some forms of framework agreements evaluating, submissions;
b) Reducing the need for urgent procedures: the shorter times for completing
procurement procedures once the initial steps described in (a) above have been
undertaken can reduce the need for urgent/special procedures, which are often
conducted in non-transparent ways and without effective and wide competition;
c) Better outcomes for smaller procurements: these procurements are considered
to achieve value for money for smaller procurements;
d) Better transparency in smaller procurements: the grouping of purchases
achieved through the framework agreement procedure for the purpose of
amortizing advertisement and other costs enhances transparency since exceptions
from some transparency requirements of the Law for procurement below a certain
value threshold (viz. provision of direct procurement by PPR/PPA) would no
longer be applicable; the grouping can also facilitate oversight, either by oversight
agencies or by suppliers or contractors themselves;
e) Enhancing participation: placing smaller orders within the framework
agreement may allow smaller suppliers or contractors to participate through
becoming a partner within a framework agreement;
f) Ensuring security of supply through binding a supplier or contractor to supply
future purchases;
g) Achieving further costs savings: centralized purchasing, which involves a
central unit of one procuring entity or a specialized independent entity making
purchases for a number of units, or one entity or consortium making purchases on
behalf of several entities may draw economies;
h) Better supply chain management: the results can include reducing the costs of
onetime bulk purchasing (which has been a characteristic of some central
procurement) and consequential warehousing and other overhead expenses;
i) Process efficiencies: centralized purchasing can also promote better quality
tender and other documents, higher uniformity and standardization across
government and better supplier or contractor understanding of procuring entities’
needs can improve the quality of submissions.
It is clear from the above list that many benefits arise from the use of framework
agreement procedures for repeated purchases. This is the most common use of the
technique, for which they are particularly appropriate. The framework agreement
procedure can be used in all procurement, whether of goods, works, services or a
combination thereof.

Disadvantages of Framework Agreements:

A disadvantage of a framework agreement for a purchasing authority is that 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.
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.
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.
Most of frameworks do not guarantee that suppliers will get any business from the
procuring entity which is a disadvantage for suppliers under the framework agreement.
The suppliers/contractors may spend a lot of time, effort, and resources getting included
on a framework agreement and never get any business as a result.

Types of framework agreement:

There are two types of Framework Agreement “closed” and “open” in practice. Close
type of agreement does not allow further entry of supplier/contractor whereas open type
of framework agreement is open to do it. The main features have been described as
below;

(1) A “closed” framework agreement works in two ways. (i) closed” framework
agreement without second-stage competition, concluded with one or more suppliers or
contractors, and in which all terms and conditions of the procurement are set out in the
framework agreement. The submission at the first stage is final, and there is no further
competition between the suppliers or contractors at the second stage of the procurement.
The only difference of this type of framework agreement as compared with traditional
procurement contracts is that the item(s) is/are purchased in the future, often in batches
over a period of time. These framework agreements are “closed” in that no new suppliers
or contractors can become parties to the agreement after it has been concluded. (ii) A
“closed” framework agreement with second-stage competition, concluded with more than
one supplier or contractor, and which sets out some of the main terms and conditions of
the procurement. The submission at the first stage is “initial”, because although each such
submission will be evaluated, a further round of competition among the suppliers or
contractors who are parties to the framework agreement is required at the second stage.
The procuring entity selects the successful submission identified at that point through
second-stage competition among those suppliers or contractors present a final submission
at this second stage.

(2) An “open” framework agreement, concluded with more than one supplier or
contractor, and which again sets out some of the main terms and conditions of the
procurement. The submission at the first stage is “indicative”, because it will not be
evaluated but will be assessed for responsiveness, and a further round of competition
among the suppliers or contractors is required at the second stage. An “indicative”
submission is not binding. Suppliers or contractors that are parties to the framework
agreement present a final submission at this second stage and the procuring entity selects
the successful submission identified at that point through second-stage competition, as in
closed framework agreements with second-stage competition. These framework
agreements remain “open” to new suppliers or contractors, meaning that any supplier or
contractor may become a party at any time during the operation of the agreement if it is
qualified and its indicative submission is responsive.
Call-offs:

Call-off is the individual contracting process after the Framework Agreement has been
concluded. This process is executed as per the pre-determined directives of the public
entity. Generally following options are adopted by the contracting authorities.

Option 1
The terms of the framework agreement define precisely the way that the call-offs will be
awarded, so there is no need for the Contracting Authority or the users to carry out a new
tender procedure. In case where the agreement has been concluded with one supplier, the
users are able to purchase (place orders) directly. In case where the agreement has been
concluded with more than one supplier, the terms of the framework agreement should
define the precise way for selecting a supplier and awarding the call-off without re-
opening the competition.

Option 2
Hold a mini competition – When the terms laid down on the framework agreement is not
precise and where several suppliers within the framework can meet the requirements,
contracting authorities are obliged to undertake a mini competition.

  Is there only one 
framework supplier? 

  Call‐off the relevant  Where there are several suppliers 
supplies, works or  in the framework, are the terms 
agreed in setting up the 
services using the terms  framework precise enough for 
agreed when the  the best supplier to be identified 
framework was set up.  for the particular need? 

Where there are several suppliers 
in the framework, are the terms 
agreed in setting up the 
framework precise enough for 
the best supplier to be identified 
for the particular need? 

Hold a mini competition 
between those suppliers in the 
framework capable of meeting 
the particular need using the 
original terms supplemented 
or refined as necessary. 

Figure-3
Conclusion:
It will be important to consider whether a framework agreement is the right approach for
the particular goods, works or services to be purchased. This will be a value for money
judgement for the contracting authority concerned. In particular, the framework should be
capable of establishing a pricing mechanism. However, this does not mean actual prices
should be fixed, but rather, there should be a mechanism that will be applied to pricing
particular requirements during the period of the framework. It should also be possible to
establish the scope and types of goods and/or services that will need to be called-off.
There should not be any objection to upgrading the product or service required so long as
it remains within the scope of the original specification. Contracting authorities which act
as central buying organisations may set up and advertise framework agreements on behalf
of other contracting authorities.

The main aim of the Framework Agreement is to provide a mechanism for the Tasks to be
called off and carried out and also to provide a supplemental and complementary
framework of provisions designed to encourage the Parties to work with each other and
with all other stake holders in an open, cooperative and collaborative manner and in a
spirit of mutual trust and respect with a view to achieving the Framework Objectives.