The Framework agreement

14.05.2013

Author : OSF Serbia

THE FRAMEWORK AGREEMENT

Framework Agreement

Article 40

            Contracting authority may conclude framework agreement after having conducted open or restricted procedure.

Contracting authority may not conclude framework agreement if subject of public procurement are services from Annex 1 to this Law, categories 6 and 27, or works which require building permit within the meaning of the law governing the planning and construction.

            Framework agreement is concluded with one or with at least three bidders, and contracting authority has to state the number of bidders for concluding framework agreement in its invitation to submit bids or applications.

            Framework agreement cannot last more than three years, and where it is awarded to only one bidder it cannot last more than two years.

            Based on framework agreement, contracting authority may award public procurement contract to the most advantageous bidder, or issue purchase order to the most advantageous bidder, if the order contains essential elements of the contract:

1)    by applying criterion or requirements stated in the framework agreement;

2)    by submitted bids from bidders, in accordance to the specifically defined criteria or requirements, unless these were not specifically designed in the framework agreement however which are not contrary to the framework agreement;

In the cases under Paragraph 5, item 2) of this Article, contracting authority is obliged to act as in the second phase of restricted procedure, and it can also use electronic auction.

Where framework agreement was concluded with one supplier, contracting authority shall conclude contract to that supplier according to the requirements and within the limits stipulated by framework agreement and, if necessary, it will invite the supplier to supplement its bid based on which was concluded framework agreement, in accordance with the requirements set in more detail.

The Public Procurement Office shall draft models and instruction on the manner of concluding framework agreements.

The Framework Agreement represents a novelty in our public procurement system; it was unknown in the previous system of legislation and has been taken over from EU regulations (Directive 2004/18). The framework agreement does not represent a special, new kind of public procurement procedure, but a flexible instrument, a mechanism, which can be used within existing forms of public procurement procedures. The procuring entity may conclude a framework agreement following conducting of an open or a restricted procedure. It practically means that there is no award of contract i.e. concluding of the contract, but only concluding of the framework agreement. Therefore, types of procedures remain either open or restricted, while the framework agreement is a result of these procedures i.e. a special form and a mechanism on the basis of which concrete obligations under contract are subsequently assumed. Given that under the framework agreement, obligations under contract are not assumed, but are assumed only subsequently with the award of the contract, in accordance with provisions of the framework agreement (which again contains essential elements of the future contract), this instrument is particularly appropriate for those procuring entities which are obliged to observe the so-called „budgetary“ year i.e. not to assume obligations for which funds have not been set aside, in situations when the budget or the financial plan for the following year have not yet been passed. The framework agreement enables such procuring entities to ensure future award of the contract, with familiar elements but without assuming obligations under contract, thus eliminating the risk of violating regulations pertaining to the budgetary system and incurring penalties, but at the same time ensuring (certainty) of acquisition of necessary procurement items. Thus a framework agreement has characteristics of a pre-contract envisaged by the Law on Obligatory Relations, Article 45, i.e. practically represents a pre-contract adjusted to specificities and needs associated with public procurements.

The framework agreement is a very flexible mechanism, widely used in systems in which it has already been introduced. It is especially used as the favorite instrument by bodies carrying out centralized public procurements (which is another novelty of the new law), which most often conduct public procurements by using framework agreements. In practice, a body conducting a centralized procurement conducts either an open or a restricted procedure on the basis of which it signs a framework agreement and subsequently the procuring entities which are beneficiaries of centralized procurements, on the basis of framework agreements, award concrete contracts without an obligation to carry out a separate public procurement procedure to award such a contract.

The framework agreement can also have extraordinary importance for individual procuring entities i.e. outside centralized procurement procedures, especially when goods that must be procured and supplied every year are concerned, enabling that within a single public procurement procedure both certainty of procuring necessary procurement items and the certainty in terms of future elements of the contract are ensured, without actually assuming final obligation once the procedure is completed and without incurring the risk to have requests for the protection of rights submitted when the contract is subsequently awarded.

There is no possibility to use framework agreement for individual procurement items if these items are services stipulated in Appendix 1 of the Public Procurement Law, category 6 – financial services and 27 – other services or works requiring construction permits pursuant to the law regulating construction and development. The framework agreement is awarded to one or at least three tenderers and the procuring entity is obliged to specify, in public invitation to submit tenders, with how many tenderers the framework agreement would be made. In EU practice, a framework agreement concluded with one tenderer is called ’the framework contract,’ which differs from the contract in that under the framework contract definite obligations under contract are not assumed. This practice has existed even before the aforementioned EU Directive has been adopted. A similar practice exists in Serbia with public procurement contracts when the procuring entity expresses reservations regarding assumption of obligations under contract or a part of those obligations, especially when they are due in the following budgetary year. 

The concluded framework agreement may be valid for three years at the most; if awarded to one tenderer it may not be valid for more than two years.

On the basis of the framework agreement, the procuring entity may award a public procurement contract (thus definitely assuming obligations under contract) with the most favorable tenderer, that is, it can place an order with the most favorable tenderer under the condition that the contract contains the same essential contract elements and applies criteria and conditions envisaged by the framework agreement – the contract is thus awarded by merely executing the framework agreement without it being necessary to conduct an additional procedure in order to award a contract, or by submitting tenders by the tenderers (the so-called ’soft tender’) in accordance with specifically defined criteria and conditions unless they are specifically defined by the framework agreement but which must not contradict the framework agreement when the procuring entity acts in the second stage of the restricted procedure, and electronic auctioning can also been conducted. When the framework agreement is concluded with only one supplier, the contract is awarded in accordance with the terms and the scope of the framework agreement; if necessary, the procuring entity can invite the supplier to supplement his offer.

The last paragraph stipulates that the Public Procurement Office will make model framework agreements and guidelines for awarding these agreements, which is particularly important for those procuring entities which require the use of this kind of mechanism and taking into account the fact that it is a complete novelty in our public procurement system.