Framework Agreements – Models and Conditions

All CPBs included in this study, except two, carry out their centralised functions by awarding framework agreements that are to be used by procuring entities through a call-off procedure. UGAP (France) also awards framework agreements, but with itself as the only user of the subsequent multi-purchase contract in order to resell the products to the customers, the procuring entities.

The study has described the legal basis for awarding framework agreements and the various conditions that must be in place during the call-off process. The study has further concluded that the CPBs studied have both similarities and differences in the way in which framework agreements have been introduced and are used, depending on the national context. Some CPBs practise both single-supplier and multi- supplier agreements, while others – for example, Consip – have so far basically used only single-supplier frameworks. There are also differences in the way in which the call-off procedure can be used, through ranking or mini-competition, with or without the use of an e-auction, etc.

In brief, the following variants concerning framework agreements have been found among the CPBs studied.

Single-supplier Framework Agreements

Although it is not a legal requirement, the single-supplier type of agreement usually implies that all conditions are decided at the level of the framework agreement, including prices and delivery conditions, which procuring entities then use for placing orders. Most of the time, the only open part of this agreement is the quantity, which is not guaranteed to the framework agreement supplier. KSzF (Hungary) is the exception, where the value or quantity of the framework agreement is determined at the point of conclusion of the agreement.

It should be noted that a CPB using single-supplier agreements may have to award parallel agreements in order to cover different geographical areas or to meet different quality requirements among its customers. Other important considerations are the duration of the agreement and the method of capturing price developments. For such agreements there is always a risk of monopolistic consequences and other negative implications.

The main advantages of single-supplier agreements are: ¾ Competitive prices;

¾ Simple use; ¾ Legal certainty.

The main disadvantages of single-supplier agreements are:

• Risk of low adaptability to individual needs, which can be a major problem in a compulsory system; • Difficulties for SMEs to participate.

Multi-supplier Framework Agreements

The multi-supplier framework agreement normally leads to more complexity, both in the award of the agreement and in the design of the call-off system. The award of a multi-supplier agreement is completed only upon conclusion of the call-off procedure, whether this procedure is carried out by a ranking or a mini-tender. This means that the responsibility for completing a multi-supplier framework agreement in general is shared between the CPB and the procuring entities, affecting the distribution of risk between the two parties for the final completion of the framework agreement.

The award procedure for a multi-supplier agreement must pay greater attention to the applicability of the agreement than is required in the context of a single-supplier agreement. A multi-supplier agreement must correctly reflect the variation of needs among the procuring entities in terms of differences in technical requirements, geographical location, the size and demands of the procuring entity, and the procurement competence at hand, to give some examples. For the award of a framework agreement, the CPB makes a pre-selection of suppliers as well as an indicative evaluation of the tenders submitted. The pre-selection of suppliers under the award of multi-supplier framework agreement has much in common with the restricted procedure, but the selection criteria need to be set with reference to the type of call- off procedure to be used. In the case of a mini-tender, the CPB needs to ensure that the variation of needs among the procuring entities is taken into account; as a result it is not unusual to find both large and small suppliers among the framework suppliers. The tender evaluation may include prices, and this is considered necessary when a ranking procedure is used. In the case of a mini-tender, quality factors may be the only grounds for the award of the framework agreement.

Multi-supplier framework agreements thus require important decisions on the following points: 1. Number of providers under the framework agreement

The number of providers needs to be at least three, but usually the CPBs include more suppliers to ensure technical and customer adaptability, sufficient competition and a sound supplier structure, including SMEs.

2. Duration of the agreement

The duration of framework agreements is normally between 2-4 years, with a possibility of extension where justified for technical or commercial reasons.

3. Design of the call-off system

The two main call-off procedures used by CPBs under a multi-supplier framework agreement are ranking and mini-competition (mini-tender).

However, the ranking procedure is not practised in exactly the same way by the CPBs. The following methods can be distinguished:

a) Fixed ranking

The order of the framework suppliers is determined by their ranking in the evaluation following the award of the framework agreement. The best-placed supplier has the first option to accept a call-off by the procuring entity. If it cannot accept the call-off for any justifiable reason, the order can be placed with the second best in the ranking, etc.

This procedure seems to have in common with a single-supplier agreement the determination of prices under the call-off by the framework agreement.

b) Dynamic ranking

The CPB arranges a price competition at certain moments during the lifetime of the framework agreement, which may change the ranking between the suppliers.

c) Indicative ranking

This is a call-off procedure whereby the CPB leaves it to the procuring entity to determine the final ranking of the suppliers based on the parameters used in the original ranking at the time of the award of the framework agreement. The final ranking is set by taking into consideration factors of importance to the individual procuring entity, such as transportation costs, local availability, and technical requirements that are specific to the procuring entity.

The main advantages of multi-supplier agreements with a fixed ranking procedure appear to be: ¾ Competitive prices;

¾ Low transaction costs; ¾ Simple use;

¾ Legal certainty.

It should be noted that a single-supplier agreement would normally offer stronger price competition since it is a winner-takes-all situation.

The main disadvantages of multi-supplier agreements with a fixed ranking procedure:

• Unless there is a mechanism for price fluctuations, the framework agreement has to be of short duration;

• Risk of low adaptability to individual needs, which can be a major problem in a compulsory system; • Difficulties for SMEs to participate.

The main advantages and disadvantages of multi-supplier agreements with an indicative ranking procedure, compared with the fixed ranking system, appear to be:

• Greater adaptability to the individual needs of the procuring entity and the local context; • Higher legal risk for procuring entities.

The study reveals that both Hansel (Finland) and the Swedish CPBs seem to strictly follow a fixed ranking procedure, whereby procuring entities first contact the supplier with the tender for the award of the framework agreement that was considered the best and turn to the second supplier only if the first is not capable or willing to provide the goods or services in question, and so on. The actual ranking of the suppliers is made by the CPB on the basis of the evaluation criteria. SKI (Denmark) uses the indicative ranking model, whereby the final ranking is made by the individual procuring entities.

A dynamic ranking procedure also exists and is used by KSzF (Hungary), for which it is the standard procedure, and Hansel also uses it sometimes. For these tenders, the ranking of the suppliers changes during the contract period. The criterion for these changes is usually the price.

d) Mini-tender

As mentioned in the section on the legal basis, where the mini-tender (mini-competition) option is chosen, the parties must compete again “on the basis of the same and, if necessary, more precisely formulated terms, and, where appropriate, other terms referred to in the specifications of the framework agreement”. The terms may be more precisely formulated or may be supplemented by terms that were at least foreseen in the specifications, but the mini-tender cannot take place on the basis of different terms.

For every call-off contract to be awarded, procuring entities must consult the economic operators that are capable of performing the contract. The mini-tenders must be solicited in writing, but this also includes solicitation by electronic means of communication. There is no specific time limit set for the mini-competition, but procuring entities must fix a time limit that is sufficiently long to allow tenders for each specific contract to be submitted. The award will be made to the tenderer who has submitted the best tender on the basis of the award criteria set out in the specifications of the framework agreement. If the mini-tender is arranged without any change of the specifications and general contract terms, but only to determine the lowest price or the criteria that are usually directly expressed in monetary terms, the call-off procedure is fairly simple and may also allow the use of e-auctions.

However, in contract situations where significant but acceptable adaptations of the technical specifications and of the evaluation criteria to meet the specific requirements of the individual procuring entity are needed, the call-off process may be very similar to and as demanding as normal tendering in terms of preparing the final specifications, setting the contract terms and evaluation criteria, issuing the tender invitations, and carrying out the tender evaluation. Such demanding call-off procedures are not uncommon under framework agreements for complex IT systems.

Findings Specific to Some CPBs

Among the CPBs, several different models exist, often in parallel. Consip has so far chosen to employ a model where the framework agreement is concluded with a single economic operator and all of the terms are fixed. According to this arrangement, a provider undertakes to accept – at the conditions and prices established – orders from public administrations until the expiry date of the agreement, although sometimes only up to a predetermined monetary amount or quantity of goods. Public entities send their orders for supplies (by fax or online) directly to the supplier. SKI and KSzF have both chosen to employ models where framework agreements are generally concluded with several providers. In this case, they are both adhering to the EU rules of having at least three different providers under each framework agreement. Additional suppliers are often chosen, however. Hansel and the Swedish CPBs represent a third model, using both single-supplier and multiple-supplier framework agreements. Regardless of whether single-supplier framework agreements or multiple-supplier framework agreements are used, the period of validity of these contracts is usually between two and four years.

Call-off Procedures

As already pointed out, the EC Directives allow call-offs to be made in two different ways if the framework agreement is concluded with several providers: a “ranking-method” or a mini-tender, depending on whether all of the terms are laid down in the framework agreement or not. The study

reveals that both methods are used. Interesting differences exist, however. One difference is the extent to which the call-off procedure is laid out in the invitation to tender. In Sweden and Finland, it is always the case that the call-off procedure and its selection and award criteria are presented in the invitation to tender. In other words, potential providers know beforehand whether call-offs will be made through a mini-tender or through a ranking.

To sum up, several models of framework agreements are used by the CPBs studied. This finding indicates that it is possible to have different opinions on which types of framework agreements are the best to use and to use in different ways the set of options offered by the provisions in the relevant EC Directive.

Issues of Particular Interest

Sigma has found that the choice and application of the framework agreements among the CPBs studied give rise to a number of interesting observations, which will be further examined in the next chapter.