Framework Agreements

INTRODUCTION

Framework agreements are contracting mechanisms in which long-term contracts provide the terms and conditions under which smaller repeat purchasing orders may be issued for a defined period of time.

Framework agreements typically comprise two distinct stages. The first stage consists of a competitive tendering process which establishes the most appropriate supplier or suppliers to be included on the framework. The second stage entails multiple call-off orders being placed directly against the contract throughout the duration of the agreement. Quality/price competition is established at the first stage and converted into legally-binding purchase orders at the second stage.

Framework agreements can save significant procurement time and resources by avoiding the need to follow all the steps of a typical procurement process for every purchase:

They also facilitate centralised procurement and demand aggregation, while retaining flexibility in purchase quantities and delivery schedules. Framework agreements may also incentivise manufacturers or distributors to invest in assets (for example, equipment, personnel training, administrative, or operating procedures), which are specifically tailored to better serve government orders.

It is important that frameworks comply with relevant national procurement legislation. In the USA and Europe frameworks are allowable for public-sector procurement and are well-used. The United Nations UNCITRAL Model Law also states that framework agreements may be used when the procuring entity determines that the procurement need is expected to arise on a repeated, indefinite, or urgent basis during a given period of time. The Model Law serves as a template that national governments can flexibly use to reform or implement procurement legislation in accordance with local circumstances and existing legislation.

BENEFITS AND DRAWBACKS

Some of the main benefits of framework agreements include:

• More effective and efficient tendering procedures and less transaction costs;
• Reducing the need for urgent procedures;
• Improved transparency and participation;
• Multiple-supplier frameworks help to ensure security of supply;
• Higher levels of uniformity and standardisation.

However, framework agreements come with some drawbacks.

• They are relatively unresponsive to change due to the exclusion of new business entrants and new innovative products;
• Suppliers face significant uncertainty when submitting their tenders in the first stage: they do not know when, what and how much they will sell over the specified time period. In particular, while typically the price of a product or service in the agreement is locked at the beginning of the agreement period, the providers' costs may change over that period. Empirical evidence suggests that providers charge for this uncertainty through higher tender prices.
• Buyers are under no obligation to award contracts to suppliers and under-used suppliers may become demotivated and not participate in future tenders.
• Buyers are locked into the framework suppliers for the duration of the agreement despite possible changes in the requirement and potential new sources of supply.

Framework agreements work best when they comprise standard, heterogeneous products or services, where there is certainty of demand, and where all aspects of the procurement (price, specification, lead times, and contract terms) are agreed at the tendering stage. Healthcare commodities such as pharmaceuticals, laboratory & biomedical equipment, medical consumables, and indirects such as stationery, travel, catering, IT hardware and contingent labour are therefore appropriate for frameworks.

INCREASING EFFECTIVENESS

Standardisation, aggregation of spend, and robust demand forecasting should be undertaken in conjunction with the establishment of frameworks in order to improve their effectiveness. In order to widen the scope of frameworks, mini-competitions can be undertaken at stage two instead of direct call-offs. This allows for a wider range of heterogeneous supplies to be procured through the framework. Only a restricted number of appropriate suppliers need to be invited to tender.

Another way of overcoming the inflexibility of frameworks is to use dynamic purchasing systems (DPS).  A DPS is similar to a framework in that it establishes a 'panel' of suppliers and can be divided into categories/lots.  However, a DPS remains open for bidders to apply to join throughout the length of the agreement.

This arrangement is particularly useful for situations where markets are dynamic, innovation is prevalent, and new suppliers (including SMEs) are emerging. The downside, of course, is the constant churn of suppliers and the need to continually approve, select and integrate them, thus mitigating the advantages of frameworks. With this mind, DPS are fully electronic and the application and selection process may operate in rounds (e.g. every year) rather than at any time.

GLOBAL EXAMPLES[1]

1) UNICEF has established framework agreements with manufacturers for the purchase of pharmaceuticals and vaccines following a competitive tendering process. The objective is to match the production quantities of the manufacturers with the purchased quantities in order to secure supply of the product over the duration of the agreement. The duration for UNICEF frameworks ranges from 1 to 10 years, with an average of 2 years plus a possible one-year extension. Contracts for each vaccine are commonly awarded to multiple suppliers within the framework to ensure greater supply security.

2) UNFPA, as the largest procurer of reproductive health commodities, can achieve economies of scale and competitive prices on a variety of quality-assured products. UNFPA has established frameworks with more than 50 international manufacturers, with the intention to include all products under frameworks eventually. National governments, non-governmental organisations, and other public-sector purchasers can take advantage of these frameworks.

3) The Global Fund to Fight AIDS, Tuberculosis and Malaria is another key global health stakeholder using framework agreements. A key component of the Global Fund’s long-lasting insecticidal net (LLIN) strategy is a shift toward use of framework contracts to optimise production, create a more sustainable market, and assist planning for manufacturing capacity.

NATIONAL EXAMPLES

In Zambia, seeking to avoid the long lead times associated with international tenders, the Ministry of Health (MoH) began creating flexible long-term contracts with manufacturers or wholesalers for essential medicines from the Zambia National Essential Drug List, including antimalarial drugs, intravenous fluids, and various antibiotics for infectious diseases. These framework contracts are time-bound, with fixed volumes per product; they have a minimum duration of 2 years. Orders that have been forecasted are placed once a year, corresponding to budgetary allocation, and generally four call-off orders and deliveries take place per year per supplier. The use of framework agreements has added flexibility in quantities ordered and delivery schedules, increased the availability of medicines, and decreased stock-outs. The Zambia MoH has also seen an improvement in relationships with suppliers, additional transparency, and overall efficiency gains from the use of framework contracts.

A study in 2020 found that regulatory and some limited practical experience with frameworks can be seen in a majority of African countries. However, the rules are sometimes ambiguous and do not always provide clear directions on framework design, establishment, operation and duration. There is also a need to ensure that procurement officials and other connected stakeholders are sufficiently trained to correctly interpret and apply the rules on framework agreements.[2]

CASE EXAMPLE

This example demonstrates how a framework can be set up which is electronic, flexible and user-centric, but at the same time consolidates spend, encourages standardisation, achieves compliance, and reduces transaction costs.

[1] https://pubmed.ncbi.nlm.nih.gov/25276589/

[2] https://www.researchgate.net/publication/342530209/

[3] https://www.nhsx.nhs.uk/key-tools-and-info/procurement-frameworks/clinical-communications-procurement-framework/