Framework agreements in the public sector

United Kingdom

In 1997, the European Commission referred the United Kingdom to the European Court of Justice for the actions of the Department of Education (Northern Ireland) in procuring architectural, engineering and other construction-related services under a framework agreement arrangement. Six years on, it appears that the European Commission has closed its case against the United Kingdom with the publication of the proposed new consolidated public sector directive on public procurement, which includes an explicit provision on the use of framework agreements (“Proposed Directive”). It seems that European procurement policy has moved on.

Current position

Under existing EC legislation, namely the directive on procurement of works, supplies and services in the water, energy, transport and telecommunication sectors (93/38/EEC) provision is made expressly for these utilities to use framework agreement arrangements. In contrast, European procurement rules applicable in all other sectors to public service (92/50/EEC) supply (93/36/EEC) and works contracts (93/37/EEC) do not recognise the use of framework agreement arrangements by public sector bodies.

What is a framework agreement?

A framework agreement (as defined in the Proposed Directive) is a flexible arrangement between the parties which states that works, services or supplies of a specified nature will be undertaken or provided in accordance with agreed terms and conditions, when called-off for a particular need. It is the case that entering into such a framework agreement does not in any way guarantee that contracts will in fact be awarded to the framework contractors, consultants or suppliers, as a contract is formed (as defined by the procurement directives) only when a call-off is awarded under the agreement.

The term framework agreement has also been used in recent times in relation to certain partnering arrangements but this is often a “framework agreement” in a much looser sense. These agreements may contain guidelines agreed between the parties on the conduct of their contractual dealings, i.e. teamworking and good faith provisions, but specific negotiation of terms and conditions will still be necessary for any individual contract which is to be entered into. This broader concept of a “framework agreement” is not relevant to the provision on framework agreements in the Proposed Directive.

The European Commission has outlined certain principles to explain what will constitute a framework agreement for the purposes of the Proposed Directive:

  • fundamental terms and conditions must be agreed (including a pricing mechanism – schedule of agreed rates); and
  • in the event that the framework contractor, consultant or supplier is awarded a specific contract, it must be possible to take a drawdown contract from the framework agreement without having to re-negotiate any of the substantive terms and conditions.

Why is being able to use framework agreements considered to be beneficial?

The inherent flexibility of the framework agreement as a tool for the procurement of works, services and supplies appears to have been the reason for the European Commission’s inclusion of provisions in the new draft text of the Proposed Directive. In the explanatory memorandum to the Proposed Directive, the European Commission recognises that explicitly allowing public sector bodies to engage in framework agreement arrangements would, “enable purchases to be made under better conditions, in keeping with the constant development of the market for certain products and services, but also avoid repetition each time in the case of repetitive purchases”. The reduction of repetition and procedure brought about by entering into framework agreements should also release resources in terms of personnel and finance which would usually be tied up in issuing notices and invitations to tender in the Official Journal of the European Communities (OJEC) and allow them to be put to better use by the public sector body. Hence, the European Commission is now promoting the use of framework agreements.

This is a view echoed in our own construction industry. As a consequence of the highly influential report written by Sir John Egan “Rethinking Construction” the construction industry has been challenged to change its ways and cultivate a less fragmented approach to contracting. The impetus for change is based on the premise that establishing long term working relationships is beneficial for the construction industry as a whole because it enables clients’ needs and objectives to be better understood and projects to be delivered more effectively. In the current climate the use of framework agreements has been looked on favourably because it is thought that such agreements could play a useful part in improving links between clients and contractors, this is also true of framework agreements entered into under the Proposed Directive even though they are limited in duration to four years.

Framework agreements and competition

In the original complaint by the Joint Consultative Committee for Building, which was responsible for triggering the European Commission’s referral of the United Kingdom to the European Court of Justice, it was observed that the use of framework agreements was only beneficial to certain parts of the construction industry and that on the whole, their effect was damaging. This theory was postulated on the basis that in entering into framework agreements for works, services or supplies, a sizeable amount of work is removed from the general market and these considerable opportunities are placed in the hands of the chosen few who have been selected to enter into the framework agreements. It is believed to be particularly disadvantageous for small and medium sized organisations which may find such framework agreements beyond their reach due to the required allocation of resources. In other words, it was thought that the use of framework agreements by public sector bodies was anti-competitive. The European Commission’s willingness to take the case to the European Courts of Justice suggests that at the time, the European Commission may also have considered that the use of framework agreements would restrict competition.

However, the European Commission appears to have reconciled itself to the use of framework agreements by adding in provisions limiting the permitted duration of framework agreements (four years) and recognising that objective criteria is to be utilised in the selection procedure. As such, the European Commission believes that it has retained the element of competitiveness in the process as it states in its notes to the Proposed Directive “Such agreements do not foreclose the market to competition and in particular, to new entrants. Contracting authorities are always free to start a new procedure for a public contract if they wish to enjoy better conditions”. The European Commission has also taken care to include provisions in the Proposed Directive which deal with anti-competitive abuses such as the establishment of cartels.

So what is changing?

May 2000 saw the publication of the European Commission’s proposal for a single directive to replace the current works, supplies and services directives (as amended in May 2002). The Proposed Directive includes provisions recognising that framework agreements can be used in public sector contracts, subject to certain conditions.

Under the provisions of the Proposed Directive, public sector bodies (defined as “Contracting Authorities” in the Proposed Directive which encompasses a broad base of authorities, organisations and institutions) will be permitted to issue an OJEC notice inviting potential contractors, consultants or suppliers to express an interest in entering into a framework agreement for certain services, works or supplies. In accordance with the annex to the Proposed Directive, this notice must include details of:

  • the proposed number of contractors, consultants or suppliers with whom it intends to enter into framework agreements;
  • the term of the framework agreement;
  • the estimated total value of the contracts to be awarded during the term of the framework agreement; and
  • the anticipated value and frequency of individual contracts to be awarded under the framework agreement.

There will then follow a pre-qualification stage and the issue of an invitation to tender to enter into a framework agreement. As stated previously, the fundamental terms and conditions of the framework agreement must be agreed and more importantly under this procedure, all of the contractor, consultants or suppliers entering into framework agreements to undertake a particular kind of works, services or supply, i.e. architectural services, must all enter into framework agreements on the same terms and conditions.

Awarding specific contracts

Wherever a specific contract (or call-off) is to be awarded, the public sector body may simply go to the framework contractor, consultant or supplier that is offering the best value for money for their particular need. Only where the terms and conditions are being refined or supplemented to meet the needs of the particular call-off will a mini-competition take place between the relevant framework contractors, consultants or suppliers and the contract should be awarded to the framework contractor, consultant or supplier who submits the best tender. In any event, no further OJEC notices are required.

You’ve been warned!

The fact that a contractor, consultant or supplier has entered into a framework agreement does not mean that it will necessarily get a proportion of the awarder’s contracts or indeed any of them. In addition, a public sector body is not bound to use its framework contractors, consultants or suppliers for any particular contract. A public sector body may still hold a general competition for a contract using the usual OJEC procedures if it wishes to do so.

When will the legislation come into effect?

Although the European Council reached political agreements on the Proposed Directive on 21 May 2002, the timing for adoption of the Proposed Directive is not yet established. Once the formal adoption of the directive has taken place, there may be up to 21 months to wait before the directive is brought into force in the United Kingdom. In the meantime, the Office of Government Commerce which has been instrumental in negotiating the terms of the Proposed Directive will continue to support the use of framework agreements by public sector bodies - recommending that new frameworks are awarded and operated on the basis of the procedures set out in the Proposed Directive.

For further information please contact Karen Young at [email protected] or on +44 (0)20 7367 2448