Also known as umbrella agreements, framework agreements facilitate the completion of long-term collaborative construction works. These are beneficial in cases where a client has a series of development projects in the works and wants to set up a simple process to speed up the procurement of goods and services that will be essential to their upcoming projects.
While this type of contract is by no means a new phenomenon in construction law, they’re use in this field is becoming increasingly prevalent. As such, we’ve set out some of the key points that will be included in umbrella agreements, who can use them along with the benefits and drawbacks to such contracts.
What is a framework agreement?
In short, umbrella agreements provide a simple mechanism for a client to award part of the project to an external party under a set of terms and for a pre-agreed period of time. This could be used to invite tenders from suppliers to carry out works or provide services, but can also be used in an employment capacity, between the client and a contractor or consultant.
The company commissioning the works may enter into identical several framework agreements with a number of providers or contractors. Similarly, contractors will likely set up framework agreements with subcontractors.
What should a framework agreement include?
Framework tender documents are likely to include the following terms:
- The start and end dates of the period in which goods/services are required;
- The precise requirements for insurance, bonds and warranties;
- A clear outline of how the project will be managed throughout each stage and the basis of remuneration;
- Specific contract conditions and terms regarding preliminaries;
- An overview of the tender process that states how a supplier will be selected and predicted timeframes for selection;
- A description of the appropriate dispute resolution process in case of disagreements;
- Statements regarding any interest or inflation percentages that will be applied;
- The exact rates for travel and subsistence expenses;
From here, one or more suppliers can be invited to tender for the upcoming works. When the need for their goods or services arises, the client can choose a suitable supplier and instruct them immediately. In the case where the client finds more than one supplier whose services meet their requirements, it’s common to expect a second selection process that will be based on best value for a particular project.
For the client, this creates cost savings and speeds up the tender process, as it enables them to skip the often time-heavy pre-qualification stage.
Meanwhile, the supplier benefits as the likelihood of being awarded the project increases when they are already on a framework agreement, compared to their chances through an open procurement process.
Who can use framework agreements?
Any organisation who is subject to EU public procurement regulations can set up a framework agreement. As previously mentioned, they can be published by clients as a means of inviting suppliers to tender for a project or by contractors inviting subcontractors to join them in providing goods or services to complete the works.
How do I secure a place on a framework agreement?
Suppliers looking to be invited to tender as part of a framework agreement will be alerted to the agreement in the same manner as they would for standard invitations to tender. Notices announcing these agreements will signal to suppliers the need to register interest using details provided. The terms, conditions, requirements and scope of work will be set out in the notice, and only those who meet the selection criteria and respond to the original notice will be awarded a place on the framework.
How are call-offs awarded?
Where only one supplier is awarded the framework agreement, the client can call-off goods or services from them on an as and when basis. If, however, several suppliers are awarded a framework agreement, the client will either:
- Directly award the contract to the supplier who best meets the specific requirements as stated in the framework agreement, or
- Hold a secondary selection process whereby all approved suppliers will compete on value.
What are the benefits of framework agreements?
Entering into a framework agreement can be advantageous to suppliers in a number of ways. For one, they boost their chances of being awarded the contract from the client. Further, with a streamlined process in place, the time taken on administrative tasks is greatly reduced. Finally, being awarded a place on a framework agreement opens the doors to suppliers, giving them the opportunity to build strong relationships with buyers by proving reliable in the provision of goods and services.
The benefits of umbrella agreements further extend to clients, insofar as they allow them to slash the downtime between identifying the need and fulfilling the requirement. Procurement is made simple, and potential savings can be made with economies of scale, as suppliers are more likely to offer competitive prices in order to increase their chances of being awarded the contract.
What are the drawbacks of framework agreements?
As beneficial as they may be to suppliers when they come to fruition, framework agreements aren’t always a guarantee of work. Even if a supplier is selected as an approved provider on the agreement, they still may not be awarded the call-off, creating uncertainties in financial forecasting. What’s more, if a supplier is unsuccessful in the selection stage, they will be locked out of potential call-offs for the duration of the framework agreement. From a buyer’s perspective, framework agreements can be restrictive. Once suppliers have been selected, no further suppliers can be added to the agreement, even if the buyer finds a new solution that could prove to be more cost effective.
At 360 Business Law, we have a specialist team of construction lawyers whose expertise in this field is perfectly placed to advise and assist with framework agreements. Whether you’re a buyer or supplier, we can draft, assess and advise on umbrella agreements to keep matters simple and risk-free. For a free consultation, get in touch using the form below or send a message on our online chat and we’ll get back to you as soon as we can.