Leasing - Framework Agreements

Tuesday 01 September 2015   Category: Leasing By Stephen Kelly

What is a framework agreement?

A framework agreement is an ‘umbrella agreement’ that sets out the terms (particularly relating to price, quality and quantity) under which individual contracts (call-offs) can be made throughout the period of the agreement (normally a maximum of 4 years).

Do framework agreements need to be advertised in OJEU?

If the procurement is being paid for out of the public purse and the value of all the potential call-offs is estimated to exceed the EU thresholds (and it is not excluded by part B of the regulations) then yes, the framework agreement should be advertised in the Official Journal of the European Union (OJEU). However, the individual call-offs do not then need to be re-advertised.

What is commonly procured using framework agreements?

Framework agreements are typically used where the authority knows they are likely to have a need for particular products or services which may include leasing finance, but are unsure of the extent or schedule. So framework agreements are commonly set up to cover things like office supplies, IT equipment, consultancy services, repair and maintenance services. Leasing finance is also available and can be accessed under certain frameworks set up be some advisors, the Office of Government Commerce (OGC) and Crown Commercial Service (CCS). Leasing frameworks are typically available for schools leasing, fleet and vehicle leasing and various equipment leasing for most public sector organisations. However, there may be fees to pay in accessing some of these leasing framework agreements which have been set up be some leasing advisors.

Who can use a framework agreement?

Many framework agreements can be utilised by more than one authority. If this is the case, the purchasing authorities need to be identified in the relevant OJEU notice. As identified above an example of frameworks available to a wide range of purchasing authorities are those formed by Buying Solutions (an Executive Agency of the Office of Government Commerce), a central purchasing body who create framework agreements for use across the whole of the UK public sector.

How do leasing companies ( lessors ) access a framework agreement?

If the framework agreement has been advertised in OJEU, lessors can only be considered for inclusion on the framework agreement if they respond to the OJEU notice by the stated deadline. The procurement process for awarding the framework agreement will then follow all the usual EU procedures and rules and be awarded according to how well lessors satisfy the selection criteria.

How are call-offs awarded under a framework agreement?

If the framework agreement is awarded to one lessor, then the purchasing authority can simply call-off the requirement from the successful lessor as and when it is needed. Where the framework is awarded to several lessors, there are two ways in which call-offs might be made:

1) Where the terms laid out in the framework agreement are detailed enough for the purchasing authority to be able to identify the best lessor for that particular requirement, then the authority can award the contract without re-opening competition.

2) If the terms laid out in the framework agreement are not specific enough for the purchasing authority to be able to identify which lessor could offer them best value for money for that particular requirement, a further mini-competition would be held between all the lessors on the framework agreement who are capable of meeting the need.

What are the advantages of framework agreements?

The main advantage to a purchasing authority of using a framework agreement is that they do not have to go through the full OJEU process every time their leasing requirements arise. Having to go through the tender procedure once rather than several times, will obviously reduce tendering costs. It also means there is less downtime between identifying the leasing need and funding the lease which may save some time. There are also further potential savings to the purchasing body through economies of scale, which may prompt lessors to offer more competitive pricing and a standard set of terms and conditions. However, there is little evidence to support this advantage as leasing pricing and leasing contract terms and conditions need to be tailored for the specific commercial needs and requirements for the authority.

The reduction to tendering costs will also apply to lessors, as going through the tender procedure is costly, time-consuming and risky for lessors too. Obviously, the main advantage to lessors of being on a framework agreement is the chance of being awarded valuable business opportunities.

What are the disadvantages of framework agreements – are they suitable for leasing finance?

A disadvantage of a framework agreement for a purchasing authority is that they are relatively unresponsive to change and are often fixed for four years – there may be new lessors and (or) new leasing product solutions within the market that were not included when the framework agreement was initially set up. Furthermore, framework agreements tend to apply a ‘one size fits all’ approach, which might make it difficult for authorities to satisfy their own specific leasing finance procurement objectives. Leasing finance is not a standard product and varies according to authorities strategic capital financing objectives.

However, most framework agreements do not place any obligation on the purchasers to actually lease anything. Therefore, if the leasing requirement has no fit with the framework agreement or the authority thinks they can achieve better value for money by not using it, then they can still procure leasing independently.

This in turn is a disadvantage for lessors under the framework agreement; most frameworks do not guarantee that lessors will win any business from them. Therefore, they may spend a lot of time, effort, and resources to be awarded an inclusion on a framework agreement and never win any business as a result.

In summary, framework agreements are often suitable for procuring standard products and services where procurement can be speeded up with reduced administration by avoiding the routine OJEU timescales. However, given the risks associated with using leasing finance to acquire capital assets decisions made in haste can prove costly. The new fastrack OJEU timescales offers authorities the alternative opportunity to procure leasing independently with less risk and on terms and conditions precisely matched to their specific needs.

As previously mentioned there may be advisor fees payable up front access the use of the framework agreement.

For more information regarding the suitability of using framework agreements for the provision of leasing finance please contact Stephen Kelly - skelly@arlingclose.com or Greg Readings -greadings@arlingclose.com

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