The benefits of a Framework Agreement

It was Thomas Bertram Lance of Jimmy Carter’s 1977 administration that popularised the phrase: “If it ain’t broke, don’t fix it”.

Construction businesses will often question why they need to spend time and money implementing framework agreements when their current terms and conditions “work just fine”, or when “we’re hardly ever in dispute with our suppliers”.

Fixing a problem before the problem manifests itself may seem counterproductive, absorbing time, cost and resource which could otherwise be spent addressing issues that require resolution.  To fix a problem, you need to be aware of the problem in the first place, and when it comes to the nuances of suppliers’ contracting arrangements (be it the carrying out of construction operations or simply the procurement of goods and materials) by the time it is broke, it is too late to fix it.

Construction Associate Moe Yassin explains.

framework agreement construction



Agree to disagree

Take this common example – you’ve contracted with a supplier to provide certain goods and materials for use on a building development, and you’ve issued the supplier with a purchase order which encloses, or refers to, your T&Cs. The supplier acknowledges your purchase order by issuing you with an order confirmation (or similar) which refers to the supplier’s T&Cs. Both sets of T&Cs assert that it takes precedence over any other T&Cs.  Referred to as a “battle of forms”, there is now a significant question mark over the contractual matrix at play – which set of T&Cs actually governs the contract between the parties?  What limitations on liability and liability periods are applicable?

No time to explain

Another common example: the building works are underway, but you need to place an order with a supplier quickly as time is of the essence. There is simply not enough time to engage in contractual negotiations with the supplier or to assemble a detailed contract. You have a longstanding business relationship with the supplier, free of disputes, so you proceed on the basis of the supplier’s T&Cs in order to get things moving quickly and avoid falling behind on the programme – favouring less than optimal contractual conditions over the prospect of delay damages for your delayed performance.

The same, but different

A framework agreement does not guarantee that a dispute will not crystalise. Rather, they are pre-emptive mechanisms which mitigate the risk of these typical issues from manifesting in the first place.  They are essentially contractual instruments which promote prudent contracting practices by providing transparency on the contractual terms and the contracting procedure for both parties.

In basic terms:

* A front-end agreement is formed which ordinarily stipulates the procedure from which a “call-off contract” is issued, the terms and conditions which will apply to that call-off contract, the duration of the framework agreement itself (and the parties are free to choose any length of time they wish), general provisions on liability, and the procedure for terminating the framework agreement (and the effects).

* When works or materials are required a call-off contract is issued via the framework agreement and which usually comprises the project specific contract particulars, technical specifications, and requirements.

* The agreed T&Cs are appended to the framework agreement (as well as any other necessary documents e.g. H&S policy, technical specifications, KPIs etc.)

With each new project or order, the supplier is simply issued with a call-off contract setting out the project specific details, and the supplier’s acknowledgement of the contract (usually by signing it) then forms the contract which is governed by the agreed terms and conditions in the framework agreement.

Not only do the parties have assurance on the contractual terms governing the works or the order, but the laborious task of compiling and executing voluminous contracts is instead distilled into a simpler, quicker, and more manageable process.

Long terms benefits

Most businesses in construction will use the same suppliers time and time again, and this is precisely where the benefits of a framework agreement are most noticeable.  For example:

* It provides significant cost savings – although a portion of work is required to agree and implement the framework agreement at the outset, there will be no need to engage in any further negotiation on terms for the duration of the framework agreement.

It saves significant time on contract administration – since the foundation of the contract is essentially pre-agreed, the parties’ technical teams can focus on what really matters, the project specific details.

* Ease and speed of management – the framework agreement will include the bulk of the contract documents (other than the bespoke technical specification) and because a call-off contract is issued under the framework agreement, which is already agreed, there is no need to include volumes of ancillary documents.

* It provides assurance on the contractual terms – dispensing with claims around battle of the forms and having clarity on the contractual position (e.g. in the event of a claim for defects or around the subject of liability) is the real perk here and which can help to save many thousands of pounds of legal fees associated with litigation proceedings.

Framework agreements can add value for many businesses and are a worthwhile option to consider with repeat suppliers.

If you would like to know more about the how framework agreements could benefit your business or need assistance with preparing a framework agreement, please do get in touch with our experienced construction team who can provide further support and advice.