Framework agreements are arrangements between one or more buyers and one or more suppliers that provide the terms governing contracts to be established for a certain period of time, in particular with regard to price and, where necessary, the quantity envisaged. Other repetitive conditions known in advance, such as the place of delivery, may be included. They are also called blanket purchase agreements and master ordering agreements. Essentially, they are intended to provide expeditious ordering of commonly used, off-the-shelf goods, purchased on the basis of lowest price. Examples of such goods are printing supplies, stationery, computers and software, and pharmaceutical supplies.
Relevance to trade facilitation
Framework agreements save the time and cost of a sourcing process as they avoid the need to renegotiate standard terms and conditions. For purchases over long period of time, such arrangements contribute to improved relationships between buyers and sellers, whereby they work together to deliver customized solutions that better meet the needs of both parties. They support long-term relationships with suppliers, thus creating a commercial environment that is more conducive to sustainable investment and employment, and cut waste in processes and physical resources. The initial work needed to establish such a framework is more than that for tendering and awarding a single major contract, but the down-stream benefits will far outweigh this. Companies with framework agreements have achieved up to 10% year-to-year improvements in the time and cost of delivery. This is particularly the case when the use of such arrangements is combined with e-purchasing systems.
In establishing framework agreements, buyers need to be aware of the effects of limited competition associated with repetitive purchases of the same products from the same suppliers for protracted periods of time. It is therefore important that the advantage of establishing long-term partnerships is balanced against that of opening up competition to new potential suppliers (especially SMEs) for keeping up with continuous market evolution.
Framework agreements should be made when the buyer needs to develop a strategic relationship with the supply chain over a long period of time, whereby suppliers can adjust to meet the buyer's requirements. Specifications and evaluation criteria are determined in advance and cannot be altered during the currency of the agreement, which runs for a minimum of 12 months to a maximum of 3 years. After this, the terms and prices may be renegotiated to ensure they are in line with evolving market conditions. UNECE Recommendation 18 supports the use of such agreements. It also recommends that an intermediary to provide commercial and transport services within an international supply chain should be included, where appropriate, in the framework contract between supplier and buyer by way of a separate contract (Measures 1.1 and 1.2).
Competition may be considered at regular periods of time (e.g. annually) for a framework agreement with a single supplier, or may be open continuously when concerning several suppliers. In the latter case, price quotations will be requested from all parties to the agreement when the need arises and an order must be placed. There are many types of framework agreements and they can be tailored to meet the specific needs of buyers.
The European Union endorses these ordering mechanisms as dynamic purchasing systems in the EU Public Procurement Directives. Useful guidance is provided in the relevant explanatory notes.