Under the Public Procurement Act, a framework agreement is a written agreement concluded between one or more contracting authorities and one or more economic operators (companies), the purpose of which is to establish the terms governing contracts to be awarded during a specified period, particularly with regard to prices and, where appropriate, estimated quantities.
For example, a hospital knows that it will require intravenous infusion solutions on an ongoing basis, and it would be impractical to conduct a new procurement procedure every few months. Therefore, it publishes a tender specifying that the procurement will be conducted through a framework agreement, covering a longer period (most commonly 12 months, although longer durations are possible), together with estimated requirements for the goods during that period.
The hospital concludes a framework agreement with the successful tenderer for the defined term, based on the prices submitted in the tender. Throughout the duration of the agreement, the hospital procures infusion solutions on multiple occasions, according to its actual requirements at the time.
This arrangement provides the contracting authority with a secure long-term supply at predetermined prices, without the need to maintain excessive inventory levels, while the supplier benefits from having a reliable long-term customer. The principal risk for suppliers, particularly during periods of inflation, is that the prices agreed at the outset of the procurement procedure under the framework agreement may remain fixed throughout the contract period.
Key Characteristics of a Framework Agreement
- Purpose – a framework agreement is used to establish the terms and conditions, primarily pricing and, where relevant, estimated quantities, under which specific contracts may be awarded during a defined period (typically up to four years).
- How it works – a contracting authority (for example, a ministry or a hospital) may know in advance that it will require certain goods or services over several years, such as office supplies, fuel, or IT services, but may not know the exact quantities required on a weekly or monthly basis. Instead of launching a new procurement procedure each month, the authority enters into a framework agreement. Subsequently, individual purchase orders or call-off contracts are issued as required, based on the prices and terms already established under the framework agreement.
