Regulation 33 – Framework agreements
Framework agreements are subjected to the rules of Regulation 33 PCR2015, which transposes Article 33 of Directive 2014/24/EU. Framework agreements are set between one or more contracting authorities and one or more economic operators, with the purpose of establishing the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged (Regulation 33(2) PCR2015).
Framework agreements are aimed at facilitating an increase in procurement effectiveness for repeated procurements (see P McDermott, et al, Effectiveness of frameworks – A report by the working group on the effectiveness of frameworks of the procurement and lean client task group, Final Report to Government by the Procurement/Lean Client Task Group (2012)). Framework agreements have been widely used in the UK since their recognition in the 2004 rules and they have been the object of significant discussion, as the benefits they generate in terms of administrative efficiency come at a significant risk for competition, particularly if frameworks are too wide, too long, or cover a very large part of the public sector demand (for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd ed (Oxford, Hart, 2015) 355-63, and here). The need to assess carefully the trade-off between the advantages and the competition risks was stressed from their inception, and this is now stressed in recital (61) Directive 2014/24/EU: “Framework agreements should not be used improperly or in such a way as to prevent, restrict or distort competition“. Given the relevance of the principle of competition in Regulation 18(1) PCR2015, this bears some stress.
The rules applicable to framework agreements under Regulation 33 PCR2015 are relatively broad and flexible, and their complexity derives solely from the fact that they include specific requirements for framework agreements of different types: mono-provider / multi-provider, fully-specified / incomplete frameworks. In any case, the rules set out in the present Regulation are insufficient to run a framework agreement as they need to be complemented with the rest of the rules in Part 2 PCR2015 (see reg.33(1) PCR2015). For a more general discussion, see C Risvig Hamer, “Regular purchases and aggregated procurement: the changes in the new Public Procurement Directive regarding framework agreements, dynamic purchasing systems and central purchasing bodies” (2014) 23(4) Public Procurement Law Review 201).
As detailed in Recitals (60) to (62) of Directive 2014/24/EU, the rules on framework agreements have been modified in three main respects:
(a) to stress their closed nature, so that economic operators and contracting authorities cannot be added during their term;
(b) to clarify the way in which call-offs under a framework agreement can be made (now, under direct call-off, mini-competition, or a new hybrid approach), as well as the objective conditions controlling them; and
(c) to clarify the rules applicable to the duration of the framework agreements and its coordination with the duration of the contracts awarded within it. All these novelties deserve some comments.
The closed nature of framework agreements
Regulation 33(5) PCR2015 indicates that framework agreements may be applied only between those contracting authorities clearly identified for that purpose in the call for competition or the invitation to confirm interest and those economic operators party to the framework agreement as concluded. This rule would seem to impose very stringent limitations on the configuration of a framework agreement, with no flexibility whatsoever as its subjective scope both on the supply and the demand side is concerned. However, this is not the reality of things. As recital (61) Directive 2014/24/EU clarifies, framework agreements should not be used by contracting authorities which are not identified in them. For that purpose, the contracting authorities that are parties to a specific framework agreement from the outset should be clearly indicated, either by name or by other means, such as a reference to a given category of contracting authorities within a clearly delimited geographical area, so that the contracting authorities concerned can be easily and unequivocally identified. Likewise, a framework agreement should not be open to entry of new economic operators once it has been concluded.
Given this possibility, it is rather obvious that framework agreements will tend to be concluded on the basis of “class descriptions” and that they will tend to be as broad as to possibly cover the entire public sector (see here for a previous comment on English practice by Albert). This raises a significant query as to the real closed-nature of framework agreements. Moreover, it seems clear that such class description can be dynamic, at least if we read between the lines of the final part of Recital (61) of Directive 2014/24/EU, which expands the guidance in relation to central purchasing bodies: This implies for instance that where a central purchasing body uses an overall register of the contracting authorities or categories thereof, such as the local authorities in a given geographical area, that are entitled to have recourse to framework agreements it concludes, that central purchasing body should do so in a way that makes it possible to verify not only the identity of the contracting authority concerned but also the date from which it acquires the right to have recourse to the framework agreement concluded by the central purchasing body as that date determines which specific framework agreements that contracting authority should be allowed to use.
The only bit that is rather uncontroversial is that economic operators that were not included in the original framework should not be allowed to enter. However, even this needs further precision because framework agreements are not exempted from the rules on contract modification, including substitution of contractor, under Regulation 72 PCR2015 [CROSSREF]. Hence, the closed nature of framework agreements may be just an illusion.
Rules applicable to call-offs
Paragraphs 33(7) to (11) PCR2015 set out the specific rules for the call-off of contracts within a framework agreement. As regards framework agreements concluded with a single economic operator by one or more contracting authorities (Regulation 33(7) PCR2015), the rules are restricted to requiring that contracts based on that agreement should be awarded within the limits of the terms laid down in the framework agreement. Therefore, the contracting authority or authorities will have substantial flexibility to set contractual terms adjusted to its or their specific needs and, if necessary, may consult the operator party to the framework agreement in writing, requesting it to supplement its tender as necessary. In this regard, it may be important to emphasise that such consultations and supplements of the tender should not result in a substantial amendment of the terms of the framework agreement (Regulation 33(6) PCR2015).
The rules applicable to framework agreements concluded with several economic operators now set three separate procedures, depending on whether all the terms of the ensuing contract are laid down in the framework agreement or not.
In the first instance, when all the terms of the ensuing contract are laid down in the framework agreement, a contract based on the framework can be awarded by application of the terms laid down in the framework agreement without reopening competition (Regulation 33(8)(a) PCR2015). Therefore, contracting authorities enjoy a substantial degree of discretion to conclude the specific contract with any of the economic operators included in the framework agreement. It is true that the objective conditions for determining which of the economic operators party to the framework agreement shall perform the contract need to be indicated in the procurement documents for the framework agreement (Regulation 33(8)(a) PCR2015). However, those conditions need not result in an automatic selection of a specific contractor.
As regards the second instance, where not all the terms of the ensuing contract are laid down in the framework agreement, contracting authorities should run a second competitive phase amongst the economic operators included in the framework agreement (Regulation 33(8)(c) PCR2015). There is no indication however on how these are supposed to be done, leaving a wide discretion in the hands of the contracting authority.
It is interesting to stress that, with the aim of providing even more flexibility, the rules establish a third (ambiguous) instance, whereby even in frameworks where all terms are set out from the beginning, contracting authorities can decide to open a second ‘mini-competition’ (Regulation 33(8)(b) PCR2015). Indeed, contracting authorities are now given the choice to decide whether specific works, supplies or services shall be acquired following a reopening of competition or directly on the terms set out in the framework agreement, and it is indicated that such a decision ‘shall be made pursuant to objective criteria … set out in the procurement documents for the framework agreement [which] shall also specify which terms may be subject to reopening of competition’ (Regulation 33(9)(a) PCR2015. ‘Mini-competitions’ in multi-stakeholder framework agreements are known to create uncertainties and challenges (see M Andrecka, “Dealing with legal loopholes and uncertainties in EU public procurement law regarding framework agreements”, (2016) 16(4) Journal of Public Procurement 505).
It should be noted that the number of economic operators to take part in a multi-economic operator framework agreement shall be at least three, insofar as there is a sufficient number of economic operators to satisfy the selection criteria and/or of admissible tenders which meet the award criteria by analogy with Regulation 65 PCR2015 [CROSSREF].
The second competitive phase (see OGC’s guidance on mini-competitions), applicable under Regulation 33(8)(b) and (c) PCR2015, should allow for as many specifications of the general terms included in the framework agreement as the contracting authority sees fit, and the award of the contract should be conducted according to the further rules established in Regulation 33(11) PCR2015. In our view however, these specifications cannot be substantially modified. These ultimately require that the result of the ‘mini-competition’ is determined on the basis of the award criteria set out in the procurement documents for the framework agreement—ie, contracting authorities cannot amend or establish new award criteria for each of the ‘mini–competitions’ within the framework agreement. In this situation, therefore, contracting authorities seem to enjoy a more limited degree of discretion to conclude the specific contracts within the framework agreement with an economic operator of their choice.
Framework and contract duration
Regulation 33(3) PCR2015 establishes that the term of a framework agreement shall not exceed 4 years, save in exceptional cases duly justified, in particular by the subject-matter of the framework agreement—ie, according to the specific technical or commercial characteristics of the goods, works or services included in the framework agreement. This rule seems to provide full discretion to contracting authorities for the conclusion of framework agreements of durations of up to four years, and to impose a higher obligation to prove the necessity to conclude agreements with a duration in excess of that period—to ensure its feasibility from a technical, commercial or some other perspective.
Nonetheless, it is submitted that the discretion of the contracting authorities in determining the duration of these agreements must clearly be restricted by competition considerations (ex Regulation 18(1) PCR2015). Therefore, even under the threshold of four years of duration, contracting authorities must set the validity of the agreement so as to avoid unnecessary restrictions and distortions of competition, based on a case by case analysis (along the same lines, S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 1175–77).
It is also important to stress that the duration of the framework agreement can de facto extend beyond the four year limit, given that the duration of the contracts awarded under the framework ‘does not need to coincide with the duration of that framework agreement, but might, as appropriate, be shorter or longer’ (Recital 62 of Directive 2014/24/EU). It is submitted that a strict proportionality assessment based on the competitive distortions that such longer duration could create is to be applied to the determination of the appropriate duration of the contracts derived from a previous framework agreement, particularly if they significantly overrun the term of the initial framework (cf Risvig Hamer, above).
It is important however, to balance the objective of maximising the return on setting up the framework agreement with the downsides on competition even if a long duration may seem legal at first instance. In this regard, the nature of the goods or services procured might be a relevant element, to support the case for a shorter duration for frameworks (and ensuing contracts) concerning relatively new or innovative goods and services, and a relatively longer duration for framework agreements in mature or relatively less innovative markets. Also, the number of economic operators included in the agreement and the turnover of undertakings in the market concerned should be factored into the analysis of the appropriate duration of the framework agreement. It is arguable that the more limited the number of economic operators included in the framework agreement and the higher the turnover in the market, the stronger the argument favoring limited duration for these agreements, since they could generate larger exclusionary effects than in cases where the framework covered a larger number of undertakings in more stable markets. Similarly, the larger the number of contracting authorities involved in the framework agreement, the shorter the desirable period for the framework agreement.
In general terms, it seems that the duration of these agreements should be determined by balancing the duration justified on administrative and commercial grounds, with the degree of potential restrictiveness of competition in the market concerned—and, where a clear conflict emerges, competition considerations should trump commercial justifications and impose a limitation of the duration of the framework—taking into due consideration, however, that framework agreements of a very short duration, eg, lasting for less than a year, probably lack interest (in which case, arguably, the contracting authority should refrain from resorting to this contractual arrangement).
Proposed citation: Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at: www.pcr2015.uk.
Last modified: September 5, 2016 by Pedro Telles
33.—(1) Contracting authorities may conclude framework agreements, provided that they apply the procedures provided for in this Part.
(2) In these regulations, “framework agreement” means an agreement between one or more contracting authorities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged.
(3) The term of a framework agreement shall not exceed 4 years, save in exceptional cases duly justified, in particular by the subject-matter of the framework agreement.
(4) Contracts based on a framework agreement shall be awarded in accordance with the procedures laid down in this regulation.
(5) Those procedures may be applied only between those contracting authorities clearly identified for that purpose in the call for competition or the invitation to confirm interest and those economic operators party to the framework agreement as concluded.
(6) Contracts based on a framework agreement may under no circumstances entail substantial modifications to the terms laid down in that framework agreement, in particular in the case referred to in paragraph (7).
Awarding contracts based on a framework agreement
(7) Where a framework agreement is concluded with a single economic operator—
(a) contracts based on that agreement shall be awarded within the limits laid down in the framework agreement; and
(b) for the award of those contracts, contracting authorities may consult the economic operator which is party to the framework agreement in writing, requesting it to supplement its tender as necessary.
(8) Where a framework agreement is concluded with more than one economic operator, that framework agreement shall be performed in one of the following ways:—
(a) following the terms and conditions of the framework agreement, without reopening competition, where it sets out—
(i) all the terms governing the provision of the works, services and supplies concerned, and
(ii) the objective conditions for determining which of the economic operators that are party to the framework agreement shall perform them, which conditions shall be indicated in the procurement documents for the framework agreement;
(b) where the framework agreement sets out all the terms governing the provision of the works, services and supplies concerned—
(i) partly without reopening competition in accordance with sub-paragraph (a), and
(ii) partly through reopening competition amongst the economic operators which are party to the framework agreement,
where this possibility has been stipulated by the contracting authorities in the procurement documents for the framework agreement;
(c) where not all the terms governing the provision of the works, services and supplies concerned are laid down in the framework agreement, through reopening competition amongst the economic operators which are party to the framework agreement.
(9) For the purposes of paragraph (8)(b)—
(a) the choice of whether specific works, supplies or services shall be acquired following a reopening of competition or directly on the terms set out in the framework agreement shall be made pursuant to objective criteria, which shall be set out in the procurement documents for the framework agreement;
(b) those procurement documents shall also specify which terms may be subject to reopening of competition.
(10) The possibilities provided for in paragraph (8)(b) shall also apply to any lot of a framework agreement for which all the terms governing the provision of the works, services and supplies concerned are set out in the framework agreement, regardless of whether all the terms governing the provision of the works, services and supplies concerned under other lots have been set out.
(11) The competitions referred to in paragraph (8)(b) and (c) shall be based on the same terms as applied for the award of the framework agreement and, where necessary, more precisely formulated terms and, where appropriate, other terms referred to in the procurement documents for the framework agreement, in accordance with the following procedure:—
(a) for every contract to be awarded, contracting authorities shall consult in writing the economic operators capable of performing the contract;
(b) contracting authorities shall fix a time limit which is sufficiently long to allow tenders for each specific contract to be submitted, taking into account factors such as the complexity of the subject-matter of the contract and the time needed to send in tenders;
(c) tenders shall be submitted in writing, and their content shall not be opened until the stipulated time limit for reply has expired;
(d) contracting authorities shall award each contract to the tenderer that has submitted the best tender on the basis of the award criteria set out in the procurement documents for the framework agreement.