Public sector procurement may seem rather slow, rigid, and costly, and often it actually is. Framework agreements are intended, in the main, to address this issue.
In this article, we explain what a framework agreement is, how it works, what the key features are, and how it benefits the buyer and the supplier, among other useful information.
But let's start with the definition.
What is a Framework Agreement (FA)?
There is no single universal definition, but the most reputable sources agree on one main characteristic, which is that a framework agreement is not an employment contract. Instead, it is a pre-agreed structure that aims to make future contracts faster and simpler to issue.
How the FA process works
According to the World Bank's 2021 Guidebook for Setting Up and Operating Framework Agreements, the various definitions have one thing in common – it follows four straightforward steps:
- The buyer (procurement entity) defines their needs and invites suppliers to submit an offer.
- The buyer reviews those offers and chooses one or several suppliers to join the agreement.
- Both sides, the buyer and the chosen supplier(s), formally sign and enter into the FA framework.
- From that point on, whenever the buyer requires anything covered by the agreement, they place a call-off (a specific contract under the FA), for which all parties that signed the FA can compete.
What types of framework agreements are there?
Depending on the number of suppliers, FAs can be divided into three main categories, according to the EU’s Public Procurement directive (Articles 33(3) and 33(4) of Directive 2014/24/EU): single-supplier, multi-supplier and open.
Single-supplier frameworks (working with just one company)
The buyer selects one supplier and all future orders are fulfilled by them for the duration of the FA. This framework is straightforward to manage, but rarely used when the requirement is large or complex.
Multi-supplier frameworks
The buyer reviews and approves several suppliers so when they require and order t be fulfilled, they have two options:
- Go to one supplier if the terms of the FA already cover the specific requirement
- Run a quick mini-competition to get the best offer. This type of FA is the most common.
Open frameworks
The World Bank Guidebook also features this third model. In this case, the list of suppliers is not permanently fixed meaning that new suppliers can apply to join THE FA at certain points during its life. This type of FA type was developed to allow small and medium enterprises (SMEs) to join the competition.
Benefits of framework agreements for buyers and suppliers
How buyers benefit from framework agreements
For buyers, FAs enable procurement to be more efficient, fairer, cheaper, more reliable, and easier to learn from. Here’s why:
1. Efficiency (do the paperwork once, buy many times)
To purchase anything, a public body must undertake several steps: advertise the opportunity, review the supplier applications, and evaluate the bids. All of these are carried out from scratch every single time. This costs time and money, over and over again.
Having a FA in place means that the buyer only has to do everything once. Every future order placed under the same FA doesn’t require any further input the cost per procurement therefore falls significantly.
Case study:
A 2009 Finnish study featured in the WB Guidebook explained the calculations behind the efficacy of FAs:
- A standard decentralized tender required, on average,167 hours to run with a cost of around €5,845.
- A centralized framework needed around 1,030 hours with the cost being around €20,000. However, that was just a one-off investment shared across numerous future purchases.
Around 270 individual tenders had been running annually for one product category alone. Switching to a framework agreement saved the Finnish government €1.5 million a year for just one product. There were also additional reductions in cost for actual purchasing, thanks to the FA, for example for commercial flights a decrease of 19% from €33 million to €5.5 million.
2. Competition and transparency
Normally, public bodies run a tender when a purchase exceeds a specific value. For products or services of lower value, buyers have more freedom regarding how and from whom they acquire these.
In practice, this means that the buyer can call an already known supplier or make a quick decision without asking other suppliers to quote when buying a small quantity or certain products.
This may open the door to fraud and corruption.
But FAs allow you buy quickly while keeping everything transparent.
Just a quick example:
Let’s say a hospital needs new printer paper, which is a small purchase, so the hospital isn’t required to run a tender. The procurement specialist buys the paper from a known supplier. That’s it.
But the issue here is that there is no record explaining why exactly that supplier was selected – it just happened. Now think about several hundred similar small purchases. The side effects are quite real: there’s no competition, no official documentation but there is bias because buyers naturally select suppliers they already know.
FAs solve this problem because several suppliers compete for selection. Even the smallest routine purchase made via the FA is backed by a fair and officially documented process.
3. Value for money
When there are many suppliers within the same FA, the overall purchase volume increases, and suppliers seek to secure that volume by offering better prices.
Plus, the mini-competitions at the call-off stage ensure that suppliers don’t get too complacent since they still need to offer competitive pricing to win individual orders.
4. Security of supply
A supplier may be contractually obliged to produce products or services at a future time if they feature with the FA.
For buyers who require a reliable, uninterrupted supply of something essential, such a commitment ensures there will never by any uncertainty.
5. Better monitoring
When a public body runs individual tenders every time it needs something, every contract features its own terms, pricing structures, suppliers, timeframes, and so on. Data is dispersed, and no one has a clear overall picture.
When it comes to FAs, every purchase goes through the same structure, uses the same terms, and generates the same type of data. So, ultimately a buyer can see how many orders have been placed, with which suppliers, at what price, and how well each one delivered.
What are the advantages of framework agreements for suppliers?
- When a supplier enters into a framework agreement, they gain access to contracts that suppliers who are not part of the FA are unable to bid on.
- Entering into a framework agreement is anything but easy but once a supplier succeeds, responding to individual orders will take less time and money than the process of submitting a full tender every time. The supplier has already proved who you are. The heavy lifting has been done.
- There is also a trust factor. The buyer has already reviewed the supplier’s business, checked their credentials, and approved them.
But there is a downside: entering into the FA doesn't mean that work will follow, and companies still have to compete with each other to be chosen.
When to use a framework agreement
A framework agreement is used when a purchasing entity requires ongoing, uncertain but frequent demand, rather than one-off projects. According to the World Bank’s Guidebook, before deciding to use the FA, the supplier must carefully examine what is being purchased, how often, and whether their legal and policy environment actually supports this procurement model.
A framework agreement can be the right choice in several scenarios:
- The buyer purchases the same things over and over.
- The items being purchased are straightforward, meaning they are simple to describe, easy to compare, and consistent in quality (office supplies, IT equipment, cleaning services).
- There is a need to address urgent situations such as natural disasters, health crises, and conflict response when there is simply no time to run a full tender.
- A single supplier cannot meet the full demand, so a multi-supplier framework is needed. This can be because of capacity limits or geography, for instance.
Challenges associated with framework agreements
1. Market closure and reduced competition
When just a few suppliers are selected for a period of several years, other companies cannot compete during the framework agreement’s duration.
This is why the World Bank Guidebook identified a third framework model, designed to keep the door open. Thus, new suppliers can apply to join at defined points during the FA’s, offering smaller businesses and newer market entrants a chance.
The UK's Procurement Act 2023 took the same idea further by introducing open frameworks which, unlike traditional FAs, are not permanently closed. New firms can join at each reopening round.
2. Transaction times and expenses may be higher than those of traditional procurement models
Framework agreements take extra time and effort to set up, which means that they only make sense when subsequently used for a large enough number of purchases.
For example, if a government spends months creating an FA for office supplies, but then only makes three small purchases using it, it is likely that the effort to set it up was more costly compared to normal procurement.
3. FAs might not be the best approach for all types of procurement
This could include procurements involving complex, specific, or new requirements that prevent the purchases from being reasonably standardized.
4. FAs may be immune to change
This can occur if new suppliers or solutions emerge during the duration of the FA, or prices alter abruptly.
5. Management complexity
FA management is more sophisticated than that of a one-off procurement.
Comparison: framework agreements vs. traditional contracts
A standard contract creates an immediate obligation. A supplier is obliged to deliver something specific, by an established date, for a concrete price.
A framework agreement does not create such an obligation at signing. It sets up the rules of the relationship before any specific need arises. Work only starts when a call-off contract is placed.
The EU Directive 2014/24/EU explains that call-off contracts awarded under a framework agreement cannot entail major changes because that would be unfair to other suppliers who competed for the original framework.
The framework agreement defines the maximum limits and main conditions. Then, each call-off contract simply adds the practical details, such as how much is being bought, when it will be delivered, or which supplier is selected from the framework.
How Tenderwell can help
Finding the right framework agreement is harder than it sounds. There are over 4,000 live frameworks in the UK alone, meaning that identifying those a supplier’s target buyers are actively using is extremely difficult.
Tenderwell covers over 30 million government tenders and contracts from more than 180 countries. You can search by sector, region, or CPV code, track awarded contracts, and set up alerts for new call-offs as they come in.
Register on Tenderwell to see what's out there.
Frequently Asked Questions (FAQ)
What is the purpose of a framework agreement?
Framework agreements cut the high costs and length of time involved in running competitive tenders over and over again for recurring needs. By running the qualification and evaluation stages once, buyers improve transparency, and often achieve better value via aggregated demand and ongoing competition at the call-off stage.
What is the difference between a framework agreement and a contract?
A framework agreement sets the terms that will govern future contracts but with no obligation to buy or supply anything. A contract creates an immediate binding commitment to deliver specific goods or services at a specific price.
What is the difference between a framework agreement and a call-off contract?
A framework agreement establishes the guidelines for future purchases such as prices, terms, and approved suppliers, but it often does not commit the buyer to purchase anything yet.
A call-off contract is the order placed under that framework agreement when the buyer requires specific goods or services. While a framework agreement with no call-offs is possible, a call-off without a framework is not.
What is the difference between a framework agreement and an MOU?
A Memorandum of Understanding (MOU) describes how the parties intend to collaborate but does not impose any legal obligations.
A framework agreement is a legally binding commercial arrangement and thus the call-off contracts issued under it are fully enforceable.
