Framework agreements, like any other contract, set up the legal relationship between two or more businesses or governments.
When a framework agreement is used, the contract is made up of two separate documents:
- the framework agreement, which establishes the legal relationship, and then
- a further agreement used to agree the exact goods or services to be supplied: whether it's called an order, service order, statement of work, requirements definition or scope of works.
A framework agreement a descriptive term for a category contact prepared to establish a legal relationship as part of information technology procurement services, or any other type of agreement where regular supply is envisaged by the parties.
Framework agreements are a preferred method of contracting when business supply arrangements predict repetitive orders or relatively a high volume of orders.
Setting up a framework agreement usually means that a contract designed for a singular / one-off transaction will not be suitable - they're just not geared for the same thing. Framework agreements are made for known, repetitive workflows.
The order ties into the framework agreement to:
- import and use the same definitions
- set up the standard that the services will be delivered
- methods of delivery and default timetables for delivery
- the terms of payment, and
- the other common provisions which will apply from order to order.
IT Procurement Frameworks: Process
At the time a framework agreement is signed, neither party is committed to do anything.
The further agreement must be reached. Until that further document is agreed does not require the parties to do anything (or at least shouldn't).
That’s done with a document prepared which is in the nature of an order.
The customer orders goods or services, and when the supplier accepts the order, the supplier is legally bound to deliver the goods or services, just like any other contract.
Differences with Master Agreements
Framework agreements is just a description for a general type of contract.
So is “Master Agreement”.
They’re aimed to achieve the same purpose. They:
- set up the framework of the legal relationship
- reduce repetitive paperwork, and
- streamline business processes,
when they're drafted properly.
Different industries adopt different conventions for the naming of documents, including framework agreements.
Yet doesn’t really matter what it’s called. It’s the legal effect of the document itself that counts.
That’s because the legal relationship is made by the contract, and contracts are read on their own terms. That's what the contract says, not what it's titled or labelled, or how it's referred to by the parties.
Difference between Framework and Call-Off Contract
In the context of framework agreements, the Contract = Framework Agreement + Order. The two documents are read together to work out what the contractual obligations are.
Titles of Framework Agreements
Some industries prefer to call it a framework agreement.
Others prefer to call it:
- Framework Supply agreement
- IT Services Framework Agreement
- Framework Service Agreement
- Enterprise Framework Agreement
- Master Supply Agreement
- Master Services Agreement
- Master Development Agreement
- Master Framework Agreement, or
- Umbrella Agreement (although this term is often associated in employment agency contracts).
Further Agreement: "Order" Document Title
The order could be titled:
- Call-Off Agreement / Call-Off Contract / Call Off Order in public sector government procurement The “Call-Off” is a reference to "calling off" of inventory or stock as and when it is required by the buyer
- Purchase Order
- Service Order
- Blanket Order
- Specific Contract
- Statement of Work, or
- any other term which makes sense in the industry.
Once the order - whatever it might be called – is agreed, the services are supplied or the goods are delivered.
Types of Framework Agreements
They’re used in mid to long-term supply arrangements for supply of:
- information technology services
- technical support
- software development
- software maintenance services
- managed IT services
- bespoke solutions
- Subcontracted services
- Services under a dedicated service level agreement
- Procurement services, such as:
- Printers and toner
- building contracts and contractors
- services to the public sector through the Crown Commercial Service, in public sector "frameworks"
Use of framework contracts are best used when:
- description of the goods or services can be standardised, with limited variations or parameters
- volume or quantities of items orders must be delivered in stages
- known skill-sets or tasks are required to be supplied
- common features are expected from task to task or job to job, or
- the products or services to be supplied are within a known scope.
For example, a managed IT services contractor might choose to use a framework agreement as a base contract, and then use orders to agree the type and terms of services to deliver a range of services.
Advantages / Disadvantages
Primarily, framework agreements reduce administrative overhead in the long term.
One way to think about them is that an order is a purchase order against already agreed terms of supply: the framework agreement.
There are a series of significant benefits, and a few downsides.
- predictability in contracting: the supplier has known terms of contract.
A new contract does not need to be negotiated and signed every time new services are required. The terms of engagement are known, and don’t vary from order or order, or from contract to contract.
- speed from order to supply: the parties have an established legal relationship.
The contract establishes a fixed process for obtaining or delivering products and services.
- contract management: Large projects are broken down into more manageable chunks.
- the individual steps are smaller and mitigates risk
- flexibility in ordering
- project management overhead not as intensive, as smaller volumes are handled
- broken down into stages in deliveries and payments
Orders are only required when the customer’s needs arise. When that time will be might unpredictable due to the involvement of third parties (such being awarded a tender), other factors and contingent events.
- business processes certainty: contracting parties have a known legal relationship, with expectations clearly set out.
The process is documented.
- reduces errors in contract documents: the terms of contract doesn’t require processing of massive documents, again and again for each order.
- standardised process is established
- reuse: Sets businesses up to re-use of documentation from:
- customer to customer
- supplier to supplier, or
- order to order
- pricing can be pre-agreed, with:
- staged and capped increases per annum
- discounts for volume in ordering
- change control: accommodates variations of orders within a definable range or scope
The contractual infrastructure almost invariably drives down transaction costs, and sets the basis for benchmarking services.
The main disadvantage with framework agreements is setting up the framework agreement in the first instance.
As with any other contract, the content of a framework agreement depends on what the requirements of the parties actually are.
Common elements of goods and services need to be identified to be inclusion in a framework agreement, to minimise the number of matters which may vary from contract to contract in the order.
Also, internal training is likely to be required so that the set of documents is used in the right way of the situations it was designed.
Once a framework agreement is agreed, there’s little room to manoeuvre in later contracts for supply.
Once the terms are agreed, they’re agreed.
If the framework is one-sided or heavily in favour of one of the parties. Time might be required to re-negotiate the terms, if that is even possible.
Problems are encountered when:
- the supplier is legally bound to accept any order placed. However, that might be fine if the framework agreement also fixes known limits to orders, which are within the capacity of the supplier
- The supplier is compelled to supply to an order placed by the customer, and is outside the bounds of expectations or capacity of the supplier
- The supplier is susceptible to being overwhelmed administratively by the contract, for instance:
- onerous reporting requirements
- lengthy delays in payment
- inability to terminate for sharp business conduct
- The supplier agrees to exclusively supply the customer, but the customer does not agree to buy exclusively from the supplier
Framework agreements tend to run for years, rather than days or months.
Depending on the industry and the nature of the goods and services to be supplied, there are a series of types of terms and conditions usually found in a framework agreement:
- exclusivity: whether the supply arrangement is exclusive or non-exclusive. For instance, a single supplier framework agreement
- scope: Definition of scope of the services or products which may be supplied
- mechanical provisions:
- who prepares orders: it’s usually the supplier
- timetables for processing orders
- change control procedure
- exit provisions
- change control: if an order is to be changed, the business process for that to happen
- basis of charging: how charges are calculated and when expenses incurred are recoverable
- payments: when invoices must be raised and terms of payment
- intellectual property: ownership of intellectual property rights / confidentiality provisions
- data security and GDPR related compliance such as subprocessors, if a separate data processing agreement is not going to be agreed
- other usual boilerplate provisions, including:
- dispute resolution clause
- force majeure
- limitations of variations choice of law clauses
- jurisdiction clauses
More sophisticated framework agreements might include:
- minimum purchasing volumes for a period: per annum / per quarter
- requirements for forecasting orders envisaged within a fixed time frame
- supply arrangements to companies affiliated with the customer
- requirements to adhere policy documents which are politically or commercially sensitive
- modern slavery policies
- anti-bribery policies
- benchmarking provisions for a technology services framework
- TUPE provisions
- exit plans and disaster recovery plans
Public Sector Procurement "Frameworks"
In government procurement, “frameworks” is more of a reference to a model of procurement and ordering for Crown Commercial Services.
The framework is a method of doing business than just a framework agreement (as described above) used in public sector procurement.
The business process in government frameworks, includes:
- Businesses in the private sector satisfy the requirements for a designated or named “framework”
- Each framework has its own requirements for qualification. For instance, the G Cloud framework agreements and series of templates are published by the Government Digital Service
- Once the private sector business satisfies the criterion of the framework, they’re able to pitch for services. The contracting party for the public sector is the Crown Commercial Service (the CCS). It’s the trading name for a Minister for the Cabinet Office. The CCS is the buyer of products and services for the government
- A vetted list of providers is available to public sector organisations for purchasing
- The government entity requiring the services goes through an evaluation and selection stage prior of each provider under consideration for the procurement
- The supplier is selected from a short list
- A predefined form framework agreement and call off agreement is used to establish the contract of supply
Each framework is highly structured and has its own pre-qualification requirements.
The government framework agreement, call-off contract and associated documentation is published by Crown Commercial Service. The process is designed to ensure that pre-qualified businesses operate on a level playing field, both before and after being shortlisted.
When a provider is selected, the legally binding contracts are framework agreements accompanied by call-off contracts (as they’re referred to in public sector procurement).
Public sector framework agreements are not your ordinary framework agreements. They’re often full-bodied contracts. That’s brought about in part by the level of transparency required. Government framework agreements might also be published after a request under the Freedom of Information Act, and lead to disclosure of highly sensitive commercial pricing information.
Is it a Framework Agreement?
The underlying concept of a framework agreement is that it’s meant to set up a legal relationship, and no more.
It’s the order that requires the parties to act, do something, which gets things moving for the supply of products or services.
When the framework agreement moves away from this, it becomes less of a framework agreement and more like an ordinary contract for goods and services.
Whatever it’s called, the order will usually expressly refer the framework agreement and state that the framework agreement and order form the contract.
Those same rules apply to framework agreements.
It may be generally under in your industry – or you might be told by your intended contracting party – that a particular document is “just a framework agreement”.
You might proceed on the understanding that it’s “just a framework agreement” like any other framework agreement, such as one with the features described above.
But then when it comes to reading contracts, the law takes a specific approach.
One of the fundamental rules of contract interpretation is that the contract is interpreted on its own terms.
That means just because a document is headed or titled “Framework Agreement” doesn’t mean that it’s the sort of agreement that you, or I would expect to see.
It’s just a title, after all.
Terms of a framework agreement will depend upon predictability of the type of work to be done by a supplier.
When a large degree of commonality exists from contract to contract, it makes commercial sense to have an overarching framework agreement which takes the heavy lifting out of each contract.
As with all contracts, a single framework agreement is unlikely to meet the requirements of all businesses. One size doesn’t fit all.
Businesses operating in the same industry might have very different framework agreements.
The contents of the framework agreement depends on:
- how the business approaches the market
- the type of products or services supplied
- the preferences and expectations of the other party
Framework Agreements Law Firm
Our contract solicitors & lawyers draft and review framework services agreements and advise on:
- major risks to business presented to cloud suppliers to ensure that traps and surprises are avoided down the line
- when clauses are suitable for to be included in framework agreements, and when they’re not
- whether the framework suitable for your business, and whether the business would over commit itself to obligations.
We have advised on the G Cloud series of framework agreements, call-off contracts for software application solutions, consultancy framework and partnership agreements, so that parties are able to cooperate on a level playing field.
We are also a business contracts disputes law firm - we see how framework agreements can unravel.
This experience with contract disputes put us in a position to see problems coming and take steps to, at best avoid them, and worst minimise business disruption caused by bad contracts to a high level of expertise.
If you need assistance on the terms of a framework agreement, call us on +44 20 7036 9282 or drop us an email at email@example.com.