What are the advantages and disadvantages of using framework agreements in procurement?

My experience of IT frameworks (in the private sector) is they are the best mechanism for leveraging strategic relationships and I'd challenge the negatives suggested. With zero value commitments, they clearly set out T&C's, fix rate cards, encourage SRM and you can tender between established partners to drive competition, innovation and value for money - if implemented properly. Importantly you can adjust applicable terms in work packages or statements of work on a case by case basis having conducted a commercial risk based approach to the project / service in scope. If frameworks are not supporting these points, I'd conclude they're not being negotiated, implemented or managed effectively. Simple solution - change your approach.

In addition to the usual benefits, Framework agreements play a crucial role in driving Procurement Strategy by offering a structured approach. These agreements enable organizations to consolidate their purchasing power, negotiate favorable terms, and establish long-term relationships with reliable suppliers. By centralizing procurement processes, framework agreements promote consistency in product quality, pricing, and service levels. Framework Agreements facilitate strategic planning, allowing for better forecasting and risk management, thus minimizing supply chain disruptions. Additionally, framework agreements foster innovation and promote sustainable practices by encouraging suppliers to align with the organization's values and goals.

One major benefit of framework agreement is in relationship building and development. Apart from the other benefits, this main benefit is of great importance because it's people who are involved from start to finish and even in the future. A good relationship between buyers and sellers would also generate repeated patronage

Frameworks are great when used for the right requirement. They particularly are helpful in a regulated environment such, as in the public or utilities sector. They need to be managed well to enable the benefits of the framework throughout its lifespan. However there can be better contracting models when you have clear requirements.

I would agree with @edwin putting in a contract is absolutely fundamental to optimize the relationship with your suppliers. I am very comfortable with putting in place 3, 5, 10+ year contracts. IF you have the right clauses and apply to the right category / vendor. Example key clauses to support 1 - Price transparency - no "padding" and helps with ESG 2 - Price escalation & de-escalation clause linked to indexes 3 - Financial health monitor clause 4 - Performance clause (enable exit for poor Q/D) 5 - Competition clause (can move product if more competitive source identified) 6 - No contractual commitment on volume or % schedule, just a forecast. If you have a contract that is not flexible or is costing you money, it is a bad contract.

A single contract is the "simplest" form of agreement, but it's not the only solution, all depends on the type of relationship, governance and competitiveness that we want with the supplier(s). Here are some other examples: a) multiple contracts - each of one for a part of the interested products/services b) multiple "twin" contracts - same services, T&C, pricing models, but each of one for a sub-area of the general business area c) multiple "twin" contracts - each of one for the entire business area of interest and that are put in competition for each order d) single framework agreement - e.g. signed by a holding company with a supplier, so that each sub-company can sign its contract with that supplier based on that framework etc.

Framework agreements can lead to laziness or lack of innovation/ competition. In addition some suppliers may end up winning the majority of the with switching other suppliers off

I disagree with the listed drawbacks of Frame work Agreements (FWAs). While some may argue that FWA reduce competition and limit access to diverse suppliers, a well-structured framework can actually enhance competition by encouraging differentiation beyond price. It can facilitate the inclusion of new and diverse suppliers, fostering innovation and creativity. FWAs, if designed with flexibility in mind, can accommodate changes in buyer needs and market demands, ensuring responsiveness and adaptability. They can also be tailored to create entry opportunities for small or new suppliers, promoting inclusiveness. In my opinion, framework agreements can ultimately promote a dynamic and competitive market.

For a supplier, bidding for a place on a framework can be a thankless task, because there is no certainty of winning work. It may therefore go to the most junior of the sales team, and the response might not be an accurate reflection of what the supplier can actually do. It therefore helps to show what early work might be called off, and perhaps what can be offered to those who win a place on the framework, based on their ranking.

Pre-established terms and conditions may not fully align with specific project requirements, leading to a lack of customization. Framework agreements also often entail long-term commitments with suppliers, which may limit the organization's ability to adapt to changing market conditions or technology advancements. Further Relying heavily on a few suppliers through framework agreements can create a dependency, making it challenging to switch suppliers if needed. Overall, while framework procurement agreements offer efficiency and cost savings, organizations need to carefully consider the potential drawbacks and assess whether the benefits outweigh the limitations for their specific procurement needs.

Framework agreements can work beautifully for direct purchasing, especially in regulated environments. Situations where material changes may be rare, there is a steady or consistent demand, or you are sourcing specialty/custom products are usually all good candidates for a Framework. Ensure that you take into consideration any future initiatives or strategies your organization may want to follow and how those may impact your agreement.

We use framework agreements for qualified supplier rosters, particularly for engineering and architectural services (which anyone in our public sector organization might call on daily). It allows each of our business units to engage qualified service providers on demand under the same terms and conditions and without executing net new contracts for every unique engagement.

Determining the appropriate circumstances for utilizing framework agreements is crucial. These agreements are particularly beneficial for goods or services with predictable and repeatable requirements. Strategic commodities that demand long-term relationships and stability are well-suited for framework agreements. Organizations regularly making large volume purchases can capitalize on the cost savings associated with these agreements. Finally, if an organization has consistent needs over an extended period, a framework agreement can provide the stability required for successful procurement.

Companies should define policies and procedures on when and how an entire Framework agreement contract is needed and when a simpler Base Terms and Conditions sheet should work instead, depending on, at least: 1) Value of the purchase, 2) Frequency of purchases with Supplier and 3) Criticality of the goods/services to purchase.

One aspect to consider on long duration projects is the validity of the framework agreements and whether the clauses survive for the entire duration of the contract including warranty. For example if the framework agreement is only valid for two years while the contract utilizing the agreement is expected to last 4 years its important to analyze the risk if the framework clauses dont survive the contract duration and an addendum could be included to extend the duration of the framework agreement till the contract duration.

Beyond having legal framework, Procurement professionals must be able to understand what they do. A minimum understanding of legal principles helps to: - negotiate legal terms ; - manage compliance with laws and regulations, - identify legal risks associated with procurement decisions and take appropriate measures to mitigate those risks. - understand the legal implications of disputes and work with legal teams to resolve them effectively. - manage contracts throughout their lifecycle, from negotiation to termination.

A framework agreement is a reference document with a specific suplier (or supplier group), selected based on the importance of the relationship or its expected development. Every category for which a framework agreement is an advantage, must have several suppliers under a framework agreement, in order to keep options open and competition fair and stimulated.

I think it may be useful for specific processes such as special goods or services which are owend to the special contractors or suppliers not general. Also I advise the studying market and analyze the price before the contract to be sure the value of the wanted services or suppliers are suitable enough .

Frameworks are good from a process perspective but in public procurement the efficiencies gained do not outweigh the damage they do. In most countries the majority of enterprises competing for business and that also make up the general economy are micro enterprises, these organizations do not get the chance to compete for framework agreements. The damage to local economies far out weigh the benefits of these purchasing approaches. In Ireland we have recently announced a greater role for these to encourage green and sustainable procurement while forgoing the social impact that they have which is just as important.