If you're doing business in the European Union, you may find yourself asked to negotiate a framework agreement. For example, if you're supplying the French government with office furniture, a procurement framework would spell out the terms for government purchases. This saves you from having to negotiate prices for each purchase.
TL;DR (Too Long; Didn't Read)
Under EU procurement rules, every government purchase of goods and services is a contract. A framework agreement spells out the terms to apply to every such contract over, say, a four-year period. The procurement framework is not usually a contract itself.
What a Framework Agreement Does
A framework agreement sets out the terms for procurement contracts over a given period, sometimes several years. It establishes various elements such as the maximum price, technical specifications and maximum or minimum quantities that can be purchased. A government body can make an agreement with a single supplier or with several suppliers in the same line.
For example, a local government agency sets up a three-year procurement framework with several vendors to purchase paper supplies. The framework sets the parameters for prices, quantities and types of paper, such as lined or unlined. When the government needs to make a purchase, it can pick from whichever supplier offers the best deal within the framework parameters without negotiating the purchasing contract from scratch.
A framework agreement can be written to allow flexibility. Purchases of travel services and software often have to be customized each time they are bought. If a procurement framework gives the parties that extra leeway, it will require more negotiation when the time comes to make a purchase.
Procurement Framework vs. Contract
It's quite common to refer to a framework agreement as a framework contract, but in most cases, the procurement framework is not a contract. A contract commits the buyer to purchase, say, five tons of battleship steel. A framework says that if the buyer wants steel, these are the terms under which he can purchase it.
The agreement is only a framework contract if it obligates the buyer to make purchases, such as three tons of steel every year for four years. In that case, the rules for any procurement contract apply.
Framework Agreement Drawbacks
Although a framework agreement can simplify the procurement process, it comes with some drawbacks.
- Once a government makes a procurement arrangement with one or several suppliers, it doesn't have the option to buy from anyone else.
- Small- or medium-sized businesses often get shut out of the framework.
- If the agreement standardizes the future contracts too much, it can hurt the buyer if there's a need for a specialized, nonstandard purchase.
- An agreement that authorizes too many small purchases throws away one of the government's biggest cost-saving tools: the ability to buy in bulk.
- The bigger the framework, the harder it becomes to manage everything.
Managing the agreement requires explaining the rules to contractors, providing guidance for buyers on how to make purchases and informing whoever monitors spending about the agreement's existence.
About International Frameworks
Confusingly, there's another type of framework agreement, this one involving nations rather than private/public sector arrangements. The Office of the United States Trade Representative uses Trade and Investment Framework Agreements to lay out principles for trade and investment negotiations between the United States and other countries. A TIFA may be called a forum or a development agreement, but the same rules apply.
Parties to a TIFA meet together at least once a year to discuss trade and investment issues. Typical topics include access to foreign markets, labor, the environment and intellectual property rights.
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com