What is the difference between a contract and a framework agreement?

smart procurement

Procurement in the public sector is evolving and like most other industries, evolution leads to digital solutions and cloud-based services. As a result, procurement processes are increasingly streamlined and cost-efficient. The simplified systems help the government reach its overarching objective of increasing the number of businesses, especially SMEs, that compete in the public sector. 

Attention has turned to how contracts are awarded, focussing on fairness, transparency, and the suitability of the procurement method used, framework agreements, for example. 

This begs the question, which method is better for which type of tender?

We’re going to find the answer by looking at the difference between standard online contracts and framework agreements (FA).

What Is A Framework Agreement?

A framework agreement in procurement is a (digital) structure built on pre-defined terms and conditions and procurement processes for purchasing goods, services, or works. 

All activities, including interactions, transactions, communications, procedures, and evaluations are bound within the established structure (framework).

Public sector framework agreements typically apply to potential future projects that will be awarded to pre-approved suppliers.

Types Of Frameworks

There are several types of frameworks and each is best suited to a particular type of contract. It’s important to know what framework contracts are available so you can make an informed decision when the next contract notice is published. Here are just four of the options available.

Single Supplier

Only one supplier is needed to provide the services, goods, or scope of work as defined in the contract. A relationship based on trust and reliability is forged, which benefits contracting authorities and suppliers in the long run.

Multi-Supplier

Several potential suppliers undergo a qualifying or approval process based on merit, capacity, and compliance with contract criteria and industry regulations. Approved suppliers compete in mini-competitions to land their desired contracts.

Dynamic Purchasing System (DPS)

The system differs from other frameworks in that there is no closing date for applications. Suppliers can submit tenders at any time during the procurement process. Evaluation is virtually continuous so suppliers must bring their A-game to successfully compete against other interested sellers. 

Sector Specific

The specificity ensures that only suppliers within the sector can submit a bid, which cuts pre-approval or pre-qualifying time. Frameworks can also address niche services. So, contracting authorities might be in the IT industry but only work with cloud-based services. G-Cloud is a good example of this.

What Are The Key Differences Between A Framework Agreement And A Contract?

While contracts and framework agreements have the same purpose, they operate very differently. We’re going to look at some of the primary differences between the two.

Specificity

Framework agreements are pretty general when it comes to pricing structures, service levels, and selection criteria. There are no specifics, definitive points, or individual projects.

Contracts are all about specifics. There is no room for ambiguity; misunderstandings could be costly. Suppliers either meet the brief and provide the services required or they don’t. There is no middle ground.

Binding Obligations

Frameworks are legally binding, but that only applies to a commitment to uphold the terms, conditions, and procedures agreed upon for future projects. There aren’t any legal obligations related to purchase volume or contract awards.

Contracts are legally binding agreements between buyers and sellers that require each to honour their obligations. Failure to do so results in penalties. 

Selection Process

In framework agreements, contracts are awarded to pre-approved suppliers through a call-off process. The process could require suppliers to participate in a mini-competition (mini-tender) to determine who wins the contract.

Contracts are awarded after going through a single-stage process. Essentially, all bids are entered and assessed using automation software. Bids that make the cut undergo a more intensive evaluation before the supplier, who offers the most value, wins the tender.

Transactions

Agreements can be structured in a way that allows for several transactions or recurring tenders, which helps establish consistency through multiple contracts and plays an important role in relationship building.

Contracts are applicable for single transactions or a specific project. Contracts might have different elements, in which case a single supplier manages the entire contract on their own, or contracts can be awarded to a consortium with all the skills required. 

Flexibility

Public sector framework contracts are quite flexible and can adapt to market changes, as well as changes to the buyer’s circumstances or needs.

Public sector contracts tend to be rigid. Changes can’t be made once negotiations have been concluded. If changes are unavoidable, the tendering process has to start again. There may also be penalties because the terms of the contract haven’t been met. 

What Are The Most Common Applications For Framework Agreements?

There are three common applications for framework contracts.

CCS Framework Agreement

Crown Commercial Service is essentially the UK Government’s online (e)Portal for public sector procurement. The CCS works with different types of public sector contracts, including framework agreements, which it uses for simple procurement requirements, for example, common goods and services. 

G-Cloud 12 & 13 Framework Agreements

G-Cloud frameworks are actually pretty specific, as far as agreements go. G-Cloud agreements are for cloud computing-based services only.

Framework Agreements in Construction

In a construction context, contractors determine pre-agreed terms and conditions for projects that are still in the pipeline. Because the terms and conditions of the projects have already been agreed upon, the initiation process is quick and easy.

Benefits Of Framework Agreements

Framework agreements provide many benefits to buyers and suppliers in the public procurement process. We’re going to look at four of the primary advantages public sector bodies can enjoy.

1) Streamlined Procurement

The beauty of procurement frameworks is that almost every element contracts require is pre-prepared. There’s no need to establish terms and define processes because it’s already been done. This makes public procurement more efficient, especially when it comes to facilitating call-off contracts for individual projects.

2) Reduced Costs

Getting negotiations out of the way before the contract notice is officially published saves a lot of time, and because time is money, it can result in significant cost savings. 

3) Increased Efficiency

Access to a pool of pre-qualified and pre-approved suppliers enables buyers to accelerate project initiation and call-off procedures.

4) Better Risk Management

Frameworks cover future transactions, which means the terms and conditions have already been established. Buyers and suppliers can make more accurate predictions because the future is certain(ish). Because they can see what’s coming, they can prepare risk management strategies to minimise or negate potentially problematic issues and use their resources more effectively.

What Goes Into A Framework Agreement?

FAs must be carefully structured to ensure that all the bases are covered; that all criteria have been included and that the terms and conditions have been clearly established. 

Here’s a quick look at what makes a good FA.

Service description: Make it unambiguously clear. Suppliers must know exactly what is expected service/product/works-wise, with accompanying specs, quality criteria, and timeframes.

Pricing & payment: The manner of payment, for example, the full amount within 30 days. Set conditions for price adjustments resulting from things like market fluctuations.

Quality control: Define quality requirements and the standards against which quality will be measured. Clarify responsibilities and obligations using a joint quality management system.

Liability conditions: All parties need to know exactly what they are liable for and what the penalties are, for example, suppliers are held liable for faulty products and must bear full recall costs.

Dispute resolution: This is critical because disputes can get nasty with everyone playing the blame game. A clear dispute resolution system must be established to keep the process fair, time-efficient, and cost-effective.

Framework Agreements Benefit Businesses Of All Sizes

Public sector frameworks aren’t limited to suppliers of a certain size. All businesses can benefit from well-structured and clearly defined FAs. However, SMEs, especially those new to public sector procurement, might have more advantages than other organisations.

Consider the fact that FAs are designed for multiple suppliers. So, several suppliers can be pre-approved and invited to join the framework. Already the chances of success are higher than bidding on single contracts.

Beginner SMEs could find it easier to gain experience through frameworks before going after single supplier contracts.

The trick is to know when to roll them and when to fold them. Delta eSourcing, as a trusted procurement solutions provider, can guide you through the framework procurement process, ensuring you are empowered to navigate the space successfully on your own.

Contact us or book a free demo and tap into our experience, and expertise for guidance on all things related to framework agreements.

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