Playing with framework agreements

Some aspects of the guidance just set out good practice (e.g. preparing a delivery model assessment part of the contract strategy, working out how much the contract should cost, checking that the pre-qualification/selection criteria applied by the framework provider were robust and sufficient for the contracting authority and ensuring that the template call-off contract includes appropriate key clauses). However, several provisions in the guidance suggested a very different interpretation of the framework agreement rules by the Cabinet Office from that which we think is correct.

The guidance does not distinguish between framework call-offs by direct award and by mini-competition. This is unhelpful. Some of the things that would be permitted under a mini-competition would not be allowed on a direct award.

The term ‘responsibility’ is also unclear, especially where it refers to ‘joint responsibility’. We would normally understand this to mean ‘legal responsibility’, but this seems to be referring to a policy mandate rather than a legal liability.   

Pricing mechanisms

The guidance suggests that the framework provider should ‘establish a range of pricing mechanisms that can be used under the framework agreement’.

If this is simply saying that the framework agreement should have different pricing mechanisms for different works, services or supplies that can be called-off under it, then we have no issue with this. However, if this is suggesting that a framework agreement can offer a choice of pricing mechanisms at the call-off stage, then this suggests a much looser approach to the requirement for a framework agreement to ‘establish the terms, including the terms as to price’¹ that we think is permitted.

The word ‘establish’ in that regulation carries its normal dictionary meaning which is ‘settle’ or ‘fix’. In our view, this means that a framework agreement must have a clear pricing structure for call-off contracts.

This is particularly the case if the framework agreement permits a direct award. Some limited choices may be available where call-offs are by mini-competition, but not if a direct award is the specified call-off method. Offering contracting authorities a choice of pricing mechanisms at the call-off stage could well make the framework agreement non-compliant on the basis that it fails to ‘establish’ a clear pricing structure.

Amending liability clauses

The guidance suggests that contracting authorities calling-off from a framework agreement may ‘amend liability clauses, if appropriate’.

Contracts called-off from a framework agreement may ‘under no circumstances entail substantial modifications to the terms laid down in the framework agreement’². This is particularly the case when calling-off from a single supplier framework agreement, but it applies to all frameworks generally.

Liability clauses are some of the most commercially significant clauses in any contract.

If the guidance is just saying that minor changes may be made to things like liability caps to ensure that they are set at an appropriate level for the contract being called-off, then this should be acceptable. However, it is difficult to see how changing the risk allocation in the call-off contract from that laid down in the framework agreement through amending the liability clauses could properly be regarded as anything other than ‘substantial’.

KPIs

The guidance recommends that a contracting authority calling-off from a framework agreement should ‘set and agree the KPIs and determine which are to be published’.

The guidance does say that the contracting authority should check that the framework agreement contains the necessary provisions to allow it to fulfil its KPI obligations. Any properly drafted framework agreement should include a template set of KPIs for the call-off contract document suite. Through the procurement of the framework agreement, the supplier will then have signed up to measure and report on these.

If the guidance is suggesting that a contracting authority can ‘set and agree’ new KPIs, without these being supported by the template suite of call-off contract documents in the framework agreement, this seems to us to suggest that there is greater flexibility at call-off level than we think the rules permit.

Dynamic purchasing systems

Finally, there is a curious provision saying that framework providers are unable continually to monitor the economic and financial standing of suppliers on a dynamic purchasing system (DPS).

Aside from the fact that this is completely irrelevant to framework agreements; since framework agreements and dynamic purchasing systems are different purchasing tools and subject to different rules, this does suggest an abrogation of the responsibility on the part of the Crown Commercial Service (CCS) and other framework agreement and DPS providers.

There is no authority for either a framework provider or a contracting authority using a framework agreement or DPS to apply economic and financial standing tests to suppliers at call-off stage, unless this forms part of either the mini-competition rules, DPS rules or the direct award process. It is therefore up to the framework or DPS provider to ensure that contracting authorities are given the right to check the economic and financial standing of a provider before they award them a contract.

It is, of course, prudent for a contracting authority to undertake its own financial due diligence by re-running the financial checks used at framework award stage or used to admit a provider onto a DPS, provided the framework agreement terms or DPS rules permit this. However, there should be some responsibility on the framework or DPS provider to monitor the financial strength of its suppliers on the framework agreement or DPS. They would then be able to advise contracting authorities approaching them about using the framework or DPS of any concerns that they have over that financial strength.

A well-drafted framework agreement or set of DPS rules should also entitle the framework or DPS provider to ask suppliers on the framework agreement or DPS for financial monitoring information as part of the management of the framework agreement or DPS.

Framework providers generally take a fee from suppliers for contracts left under the framework agreement. Rather than seeing this as just an income generation opportunity, framework providers such as the CCS ought to use at least some of those fees for managing the framework agreement in the interests of contracting authorities that are proposing to use it. In summary, contracting authorities should be wary of following some of the guidance on using the Sourcing Playbook in conjunction with framework agreements (and DPS). Playing with the Playbook under framework agreements may not necessarily be ‘safe play’.

¹ Regulation 33(2) Public contract regulations 2015, PCR 2015

² Regulation 33(6), PCR 2015

If you would like more information on framework agreements, please contact Andrew Millross.

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