I ended the second article in this series talking about framework agreements. A standard sourcing contract will obviously contain terms and conditions, definitions and various schedules, but where the documents need to accommodate a framework agreement there are a number of options.

A Master Services Agreement or ‘MSA’ can be used where a main agreement needs to be adapted to the needs of local jurisdictions. This usually involves a main services agreement together with local agreements which incorporate the terms of the main agreement. The local agreements set out exactly what’s being supplied in each country and the price to be paid, and they vary the main terms by replacing specific clauses with an approach which is compliant in each jurisdiction.

For a framework agreement structure the main agreement can describe the entirety of the services available to be bought, with the local agreements determining what is needed in each locality.

Another approach is to have a short framework agreement and then attach an agreed form of outsourcing contract. In this situation the framework deals mainly with governance of the relationship between the supplier and customer. It would normally also set out the services available to be bought and a commitment to contract on the terms set out in the agreed form documents. The body of the supply arrangement then comes into being when a supplier party and a customer party sign a stand-alone outsourcing contract (in the form attached to the framework). This, rather than the framework itself, then governs the supply of services.

In some cases the customer has sufficient certainty for the framework to resemble a price list of products, standardised implementation projects and day rates for later purchase. It might even incorporate pre-agreed discounts. Of course where the customer doesn’t have this luxury, much more has to be left to future agreement (or disagreement).

A key objection to frameworks between a single customer and single supplier is that it may be difficult to keep prices competitive. In particular, where the services are not fully defined and the prices, quality and timescales have been left for future debate, there is little pressure the customer can exert if the supplier quotes a high price. Even where it’s been possible to take a ‘price list’ approach there remains the challenge of keeping those prices competitive over time.

One answer is to set up what’s usually called a ‘multi-vendor’ framework.  Here the customer sets up a framework arrangement with several suppliers and runs a mini-competition every time it wants to place an order. 

In this situation the role of the framework agreement is expanded.

For a start it needs to include a commitment from all the suppliers to compete for work offered, and explain how the mini-competitions will be handled. Also, if we assume there’ll be some interface or interdependence between the various services required, the arrangements need to provide for the suppliers to cooperate. The governance structures and financial incentives need to be constructed with this in mind. Otherwise the benefit of lower prices may be nullified by risks to the customer in managing the integration of the different suppliers’ services. There is also of course the added time and cost of running competitive tenders with multiple suppliers for each service component.