Why are framework agreements important to SMEs?
Posted by David Law on May 5, 2015
In our blog about election manifestos one thing that was clear is that all the main parties feel that involvement of SMEs in procurement is the key to economic growth. The current Government set a target of 25% of all Central Governments spend to be with SMEs when it came to power in 2010 and it met this target in the 2013-2014 financial year. Framework agreements represent around 45% of procurements in the UK and compared to other EU nations the UK uses this type the most. The purpose of this blog is to explain how important framework agreements can be for SMEs.
They can be broken down into lots. In the new regulations it suggests that authorities can break tenders down into lots where applicable. Although this has always been an option, there has been a change in focus initiating a ‘do it or justify why not’ approach which is good news for SMEs as it means that larger contracts that would previously have been out of reach for SMEs are now available. An example of this could be if a nationwide buyer was publishing a framework agreement for building maintenance they could break it down into geographical lots meaning that regional based maintenance suppliers would have an equal chance of attaining the contract opportunity as the larger suppliers. Buyers have the right to request suppliers to have a turnover that is twice the value of the contract they are applying for. For any contract broken down into lots they will require the supplier to have twice the turnover of the lot value they are bidding for and not the total value of the contract. In the past, SMEs were priced out of certain opportunities due to buyers using turnover requirements that were far above the value of contract but with the new directive this should no longer be an issue. (Regulation 58)
They can help to build relationships with buyers. As framework agreements are normally for a maximum of 4 years they can enable any supplier who is part of one to build a long term relationship with the buyer that will support continuous improvement in products and services. Through performance management and good communication a good relationship can be formed making it more likely that the buyer will work with you in the future. Once the framework has been awarded and the lots have been shortlisted to potential suppliers no additional buyers or suppliers can be involved. This means it is in the interest of the buyer to work with the shortlisted suppliers as they would not want the hassle or cost of either setting up a new framework or restarting the procurement process. At the same time, suppliers also benefit through the reduced transaction costs i.e. saving the substantial time cost and cost of repeat bidding.
How are contracts awarded under a framework agreement?
Once a supplier is on a framework a buyer will issue an individual contract (call off) at any point during the period of the agreement. There are two ways that call offs can be made. If a framework is awarded to one supplier the authority will just call off the requirement with them when needed. If two or more suppliers are part of the framework they can award it in one of two ways:
1) Where the terms laid out in the framework agreement are detailed enough for the buyer to be able to identify the best supplier for that particular requirement, then they can award the contract without re-opening competition.
2) If the terms laid out in the framework agreement are not specific enough for the buyer to be able to identify which supplier could offer them best value for money for that particular requirement, a further mini-competition would be held between all the suppliers on the framework agreement who are capable of meeting the need.
Suppliers need to decide before bidding if it is worth the time and effort to put in a bid to enter a framework with no guarantee of any work. An authority can decide after a framework is set up that it doesn’t actually meet their needs and never do a single call off which for a supplier can be very frustrating. Also it is worth looking at the contract notice for the frame work opportunity and particularly the section: ‘maximum number of participants to the framework agreement envisaged’ as this should normally be around 3-6 but there is no limit to what number a buyer can put down so if they are looking for a large number of participants it might affect a suppliers decision to put a bid in.
Framework agreement contract award notices can be used for market intelligence. Contract award notices can also be important to SME’s as they can give vital information that can be used in advance of a new framework being published. They can have information about the suppliers who are part of the framework, details of the award criteria, the duration of the contract and the final value. SMEs will gain plenty of information for when the framework will be tendered for again. For a smaller contractor it can be used for sub-contracting as it contains the contact details of who has won the contract.
We would like to hear what you think. What are your experiences with framework agreements?
How to find out information about framework agreements. If you are interested in knowing when a new framework agreement is being launched make sure that you have a subscription to Tenders Direct. Tenders Direct customers automatically get sent through any relevant framework agreements and related contract award notices straight to their inbox enabling them to have this vital information as soon as possible. We also have an advanced search function and five year archive that can be used to bring up details of historical contract award notices which can be used to plan your business development activities, do early engagement with the buyer and give you more time to prepare for these types of opportunities. To find out more give our friendly help desk staff a call on 0800 270 0249, or click here.