UK Public Procurement Open frameworks – open field or missed open goal?

July 2023

Paul Henty and Peter Kitson

Introduction

We have covered the reforms set out in the eagerly awaited Procurement Act 2023 in a number of articles. Those following developments will know that this important landmark legislation will present multifaceted changes to an area of law that had hitherto been shaped by the UK’s membership of the European Union.

In its Green Paper “Transforming Public Procurement”, the UK Government outlined how it wished to speed up procurement while also making it more transparent. Framework agreements were among the specific areas targeted for reform, although some have felt disappointed by the relatively limited changes proposed. The proposals are now translated into draft legislation and the new statute is expected to receive Royal Assent in autumn 2023.

This article makes the argument that changes are needed to the way framework agreements operate in the UK. Whilst the draft legislation has reshaped the rules on frameworks, it has not addressed the core problems, which are holding back the full potential for this form of procurement.

Framework Agreements – What are they?

Framework agreements allow purchasers to make repeat purchases of goods, works or services without having to readvertise opportunities and conduct a full tender process.

For single-supplier frameworks, the purchaser will be at liberty to award in-scope call-off contracts to the appointed framework partner. For multi-party frameworks, call-offs will be allocated following mini-competition processes between members of the framework panel. As their name suggests, mini-competitions tend to be far shorter than normal competitive tender processes (in fact, sometimes suppliers complain they do not allow enough time to prepare responses).

Frameworks have the potential to reduce administration; the award of call-offs is generally easier than full tender processes, they also allow different public bodies to buy through the structure (and new authorities can join during the lifetime of the framework). In a number of court judgments, public bodies have convinced judges that the entry into frameworks should not be delayed pending the outcome of challenge proceedings. A key factor has been the loss of anticipated savings that could be suffered not only by the public bodies buying through the framework but by ultimate end users and beneficiaries (e.g. NHS patients).

Existing rules on Framework Agreements

The applicable rules on public sector frameworks are set out across the different procurement instruments (e.g. Public Contracts Regulations 2015, Utilities Contracts Regulations 2016, or Defence and Security Public Contracts Regulations 2011).

The following are key features of the current rules on frameworks:

The only opportunity to join a Framework Agreement arises at the point when it commences. Where the anticipated value exceeds the applicable threshold, the framework must be advertised in the UK’s Find a Tender Service (which has replaced the EU’s Tenders Electronic Daily service for UK opportunities);
The advert must set out an estimate of the value of the framework. This need only be a good faith estimate and does not commit the authority procuring the framework nor any other potential buyer under the framework to actually spend the published, or any, amount.
More than one public body can buy through the framework. New buyers can use a framework provided the original contract notice either named them as a potential future user or identified a class of buyer (e.g. NHS Trusts, local authorities) to which they belong;
Frameworks can be set up either as single-supplier or multi-supplier frameworks. Multi-supplier frameworks must have a minimum of two suppliers appointed;
Specific contracts (or “call-offs”) will be awarded through the provisions of the parent framework agreement. These must be “in scope” with regard to both the subject matter and value of the original framework advertisement;
The call-off does not have to be advertised provided that it falls within the scope of the Framework as advertised (for example with regard to financial value limits) and the value thresholds (which cannot materially be exceeded); and
Multi-supplier framework agreements will include a competitive process for the selection of the winning bidder and may specify procedures for direct award where permitted under the Regulations. Only the appointed suppliers will compete for the specific contract opportunities.

Because of the risk of challenge if initial estimates of value are materially exceeded in terms of the follow-through expenditure under the framework, public buyers tend to err on the side of caution when setting their estimates by advertising a higher figure. Inevitably, central purchasing bodies and other procuring authorities are also aware that larger anticipated values are likely to promote market interest (a finding also supported by the CECA Report). From the perspective of suppliers, that may not be helpful. It means that they may overestimate the value of resource required under the framework (which impacts resource allocation plans) and/or the strategic importance of pursuing this opportunity as opposed to others that may compete for attention and resource.

Framework Agreements: A supplier perspective

Suppliers appointed to framework agreements like the fact that call-offs do not have to be advertised. That means value can be delivered without having to incur the expense of a full tender or face additional competition.

However, many suppliers also have some dissatisfaction with frameworks, considering that they often require a level of investment which is not rewarded in terms of the work which successful bidders actually secure.

In its excellent report on Framework Agreements, the Civil Engineers and Contractors’ Association (CECA), set out the experience and views of CECA members on frameworks. The membership brings together some of the UK’s most prominent contractors, working on high value infrastructure projects.

The report made the following key findings:

Well-managed frameworks offer enhanced value for money by encouraging economies of scale and efficient resource allocation.
Frameworks can reduce administrative burdens, resulting in cost savings and improved focus on project delivery.
A well-structured framework provides security to the supply chain, enabling better planning and investment.
Frameworks can promote safety and well-being by fostering a high standard of safety culture and regular engagement.

The Report observed that frameworks frequently suffer from the following weaknesses, which may prevent them from functioning well:

they can suffer from decreased transparency and competition, becoming closed systems, shutting out new suppliers;
they may lack visibility of upcoming projects, making it difficult for contractors to plan and invest efficiently. Some authorities even misuse frameworks, creating select lists of contractors for ad-hoc opportunities without delivering long-term value.
SMEs may struggle to participate in frameworks without good connections to established contractors;
once appointed, civil engineering contractors may feel locked into a framework for its entire duration, posing challenges for resource management and long-term sustainability;
frameworks established without a clear pipeline of projects or uncertain volume levels are unlikely to achieve efficiencies or create value, even if continuous improvement is expected.

The report also outlined a number of interesting findings in relation to CECA members’ experience of framework agreements within the preceding five years:

71% of CECA members reported that actual workloads are frequently less than anticipated. 20% said this was always the case;
64% indicated a regular lack of workload visibility; and
56% reported it is common for frameworks to have unnecessary second competitions.

The report provided recommendations which aim to improve the effectiveness of frameworks and promote collaboration between clients and contractors to achieve successful outcomes in civil engineering projects.

Summary of Procurement Bill changes regarding frameworks

Many of the rules proposed by the Procurement Bill on frameworks remain the same. The Bill preserves the existing routes for awarding call off contracts under frameworks, with competition being the default. Call-off contracts can be awarded without competition only when there is only one supplier in the framework or when the framework specifies both the core terms of the public contract and the objective mechanism for supplier selection.

Within its Green Paper, the Government sought to address a perceived concern that frameworks lead to a closed market, which limits competition. Once awarded, the current rules do not allow new suppliers to join during the lifetime of the framework (in contrast to dynamic purchasing systems). For that reason, the Government proposes to introduce the concept of “open frameworks”: “[t]o increase the innovation currently stifled by the limited flexibility offered in PCR style frameworks, we propose to introduce a new option that allows for a longer maximum term and for the framework to be open for new suppliers to join at defined points. This will make it easier to achieve value for money, particularly where the contracting authority needs a longer-term relationship, for example in construction and infrastructure.”

The Government’s consultation asked only one question in relation to framework agreements, namely “[d]o you agree with the proposals for open and closed frameworks?”. While 76% of respondents agreed with the Government’s proposals, there were some notable objections. Echoing the findings of the CECA Report, many suppliers responded that there was overlap between different frameworks in terms of the opportunities that could be awarded. That duplication puts pressure on suppliers to compete for places on each of the different frameworks which would multiply their bidding costs and lead to uncertainty as to which frameworks contracting authorities would actually use in practice.

Summary of new rules on frameworks

Open frameworks, the main innovation of the Bill in this area, are discussed below. Other features of the new rules are highlighted here. First, as now buyers can choose between either a single party or multi-party framework. Where it opts for the latter, it is not obliged to limit the number of suppliers appointed (although in practice the authority may voluntarily impose such a limit).

Each Framework Agreement must set out the following key information:

description of goods, services or works
the price payable, or mechanism for determining the price payable
estimated value of the framework
any selection process to be applied on the award of contracts;
the term of the framework
the CAs entitled to award public contracts in accordance with the framework; and
whether the framework is awarded under an open framework.

This replicates the current rules to a large extent. As now, the Government has not proposed that buyers must give anything more than a good faith estimate as to how much may be spent on frameworks.

Open frameworks: key operating principles

Clause 47 of the Bill introduces the concept of “Open Frameworks”. An Open Framework is a scheme of frameworks that allows for the award of successive frameworks on substantially the same terms. It functions like a longer framework that can be refreshed and adjusted at defined intervals, providing an opportunity for new entrants to join the appointed suppliers.

Key features of open frameworks are as follows:

Successive frameworks must be awarded on substantially the same terms.
The Open Framework must make provision for further frameworks to be awarded. These additional frameworks can be awarded at defined intervals, such as annually or biannually, with at least one re-award required in the three years and at least one in each subsequent five-year period from the first re-award.
The frameworks succeed one another, and each framework expires on the award of the next.
The total term for the Open Framework is eight years from the award of the first framework.
For the Open Framework to work, there must be at least two suppliers. If only one supplier is admitted, the framework must expire after four years.
The Open Framework must be competed and cannot be directly awarded.

Re-admission of Existing Suppliers to the Open Framework

The process of readmitting existing suppliers to the Open Framework depends on the number of suppliers that can be a party to the framework.

Limited Number of Suppliers: If there is a limit on the number of suppliers that can be part of the framework, it will in all likelihood be possible to readmit an existing supplier based on a tender it previously submitted for an earlier award which could be a tender in response to a previous mini-competition under the scheme or a new tender relating to the current award. We are hopeful that the Government’s forthcoming guidance will shine a light on how this will operate in practice.
No Limit on Number of Suppliers: If there is no limit on the number of suppliers, the authority can re-admit a supplier based on the fact that the supplier has already been awarded a framework under the scheme. In this case, there is no need for the authority to reconsider an earlier or a new tender. In this scenario, the Bill seems to anticipate that contracting authorities effectively have a discretion to retain incumbent providers in any re-award.

Dynamic Markets, expanded from Dynamic Purchasing Systems (DPS), function as a qualification tool, creating a pool of qualified bidders. Contracting authorities can then award public contracts based on suppliers’ membership in the dynamic market. A DPS allows new suppliers to join at any time but also requires every specific opportunity to be advertised.

As a follow-up to its consultation, the Government has concluded there is currently confusion among buyers as to how frameworks should be operated. To address this, it intends to publish guidelines to educate public buyers on the optimal use of the framework agreements, open frameworks and dynamic markets to accompany the new statute.

Pipeline notices – but not for call-offs

Other aspects of the Procurement Bill have shown the Government recognises the value of giving advance notice to suppliers in order to allow them to prepare for forthcoming procurements.

For example, contracting authorities (but not utilities) will be required under S 86 to publish “pipeline notices”, setting out whether they consider that for the coming financial year they will purchase more than £100m of goods, services or works (but excluding any contracts exempt from competitive procurement) . The pipeline notice must contain “specified information” relating to contracts in respect of which it intends “to issue a tender notice” where the estimated contract value is greater than £5 million (Regulation 93(3)). This notice must be published 56 days following the first day of the relevant financial year.

Will pipeline notices make purchases under frameworks more predictable and transparent? Probably not. First, while the notice must set out the aggregate amount of expected spend, it does not need to specify whether that expenditure must be made under a framework (and if so, which one). Second, the notice must only detail those contracts in respect of which a tender notice will be issued. That would rule out framework call-offs, which do not require publication of any such notice. Thirdly, many authorities will not have a procurement budget exceeding £100 million and therefore will not be required to publish the notice in the first place.

Do the changes meet suppliers’ concerns?

While the proposed changes in the Bill address certain aspects of suppliers’ points as highlighted in the CECA report, there are still some practical issues that have not been tackled. The Bill does recognise the importance of competition in awarding call off contracts under frameworks and sets out clear criteria for non-competitive awards, providing some level of transparency and fairness.

The introduction of “open frameworks” aligns to some extent with the CECA recommendations for incentives for suppliers to invest in frameworks and to have the ability to develop a long-term relationship with the client. It allows more competition in the framework structure and defined entry points (although these are fewer than for DPS / Dynamic Markets, which could encourage stability). The knowledge that membership of a framework agreement is likely to lead to the creation of another framework agreement may lead a supplier to consider that it has a shot at a longer-term relationship as well as a greater probability that a good return will follow the initial, upfront investments of competing for and remaining on the framework.

There must, however, be concerns as to whether “open frameworks” can truly assist to serve the purpose for which they are intended. The first concern is that their use will be optional, rather than compulsory. They will coexist alongside the traditional, “closed” frameworks, which are simpler to operate and appear to impose fewer obligations on contracting authorities than the new open framework. It may well be that authorities decide “better the devil you know”. An open framework will commit the purchaser to opening another framework on substantially the same terms within the first three years. Will they want to commit to a second framework without knowing how well the first framework will work in practice?

Crucially, the reforms do not in our view address the central criticism made in the CECA Report, which is around visibility and commitment of a solid and dependable work-bank. Suppliers have no guarantee as to how much work they can expect to get from being on a framework. This emanates partly from the absence of any duty on the procuring authority to commit to a minimum level of spend, or to give any concrete indication as to which specific call-off contracts will be awarded. That is not to say that contracting authorities never give such an indication (Network Rail for example tends to be specific about pipelines for major engineering works in each ‘Control Period’), merely they are not required to and do not provide it often enough.

Open frameworks may succeed in opening “closed” frameworks to competition, but will they make frameworks more competitive? From the perspective of suppliers, there is a good chance of securing an eight-year relationship with a client. This, however, is not guaranteed and the only certainty is the chance of a place on an additional framework. There does not even appear to be an obligation on the purchaser to specify exactly when the new framework will be awarded within the first three year or subsequent periods. Requiring buyers to commit to a minimum spend under the framework or enhanced visibility on when call-offs would be commissioned may have added more certainty for suppliers, enabling them to better guess the likely return on the investment of bidding costs. By the way, public buyers should stop seeing those costs as “suppliers’ problem” in some sort of zero-sum game. The likelihood is these will boomerang back – to some extent – as service quality cuts or higher prices for public sector clients.

Part of the answers to these questions will lie in the strength of the guidelines on the optimal use of frameworks and dynamic markets which are yet to be released. It is to be hoped that – in the absence of hard-edged legal obligations – the Cabinet Office will give contracting authorities a firm steer towards being more transparent in the timing and actual value of specific opportunities to be awarded under the procurement. Competition is not only a numbers game or concerned with facilitating market entry, it is about fostering competitiveness and working in synergy with the private sector to deliver efficiencies and enhance the quality of goods, works and services.

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