The JCT has recently published a framework agreement (the "Framework") for use in the public and private sectors. Whilst a welcome addition to the JCT suite in principle, has the framework agreement set itself the wrong goals?
The JCT's new Framework focuses on the long-term relationship of the "Employer" and its "Service Provider" across a number of projects. The Service Provider could be a supplier, consultant or contractor (but for ease this article refers only to contractors). As and when the Employer needs to address the shorter-term requirements of an individual project, the Employer and the Service Provider sign the usual construction contract (the "Underlying Contract") for that project.
The Framework comes in "binding" and "non-binding" forms (intended to be "contract" and "no contract" respectively). These are largely the same. However the non-binding form omits clauses, such as dispute resolution, which are only relevant to contracts (but curiously has termination and Contracts (Rights of Third Parties) Act 1999 wording).
JCT Framework Objectives
The JCT guide states the Framework is "designed to encourage the Parties to work with each other and with all other Project Participants in an open, co-operative and collaborative manner and in a spirit of mutual trust and respect with a view to achieving the Framework Objectives".
The "Framework Objectives" range from the tangible (zero health and safety incidents, right first time with zero defects) to the intangible (consideration for others, enhancement of the service provider's reputation). They are to be through practical measures such as establishing suitable communication channels, pre-project risk analysis, sharing information and know-how, value engineering and early warning mechanisms.
However, the Framework falls short of its goals in key respects:
- it is unlikely to be in line with the new public procurement rules on frameworks, so would need substantial adaptation for use by a public body;
- it does not adequately address the whole supply chain, making it less likely the framework objectives will be achieved; and
- its relationship with the Underlying Contracts renders the Framework optional, enabling parties simply to pay lip service to it without fear of sanction.
The above is not an exhaustive list. For example, the Framework does not deal with the parties' expectations as to the potential volume of work arising out of the Framework. In consequence, it is unclear whether the Service Provider could claim damages for loss of opportunity if awarded less work than anticipated. Such further issues are beyond the scope of this article, but underline the need to critically review and amend the Framework before use.
Public procurement issues
Public bodies have embraced and developed framework agreements as a means of reducing the considerable time and expense required to comply with the public procurement regulations. They have done this ahead of the EU's adoption of agreed procedures for using framework agreements, contained in the new public sector directive. This must be implemented by the start of next year. Draft regulations are out for consultation. The JCT guide states that the Framework is suitable for use in the public sector. However, public bodies should not assume the Framework complies with the new regulations.
The regulations aim to ensure there is transparency, competitiveness and no discrimination. In the context of framework appointments, this means including terms that clearly set out the "call-off" process by which the parties enter into underlying contracts. This could be by applying the fixed terms of the framework or, where certain terms are yet to be fixed, by holding a mini-competition. The Framework does not include a call-off mechanism.
Further, the Framework allows the Service Provider to take on "significantly different risks and/or responsibilities to those envisaged in the Employer's original requirements", with consequential changes in the remuneration package. Again, public bodies must be careful the scale of these changes does not take the project outside the scope of the original framework. If it does, the project will need to be separately tendered.
Public bodies will need to take these points into account to avoid the possibility of challenge.
The supply chain
The Framework's stated objective – fostering long-term relations – is further weakened by not adequately addressing the whole supply chain.
The Framework states the Service Provider must "endeavour" to see that members of its supply chain embrace and adhere to the Framework's principle of collaborative working. This is a weak obligation. The Service Provider must commit to using the same sub-contractors across all Underlying Contracts and engaging them using the Framework. If not, the inevitable tensions between the competing contractual systems will undermine the Framework principles.
Relationship between Framework and Underlying Contract
Finally, the Framework's subordination to the Underlying Contracts makes it unlikely the Framework's objectives will be achieved.
The Framework does not have "any legal or contractual effect or bearing upon the formation, interpretation, application, administration, performance or enforceability of any of the Underlying Contracts". The parties are also "excused compliance with the conflicting / discrepant provisions of this Framework Agreement in so far as they apply, or would otherwise have applied to the relevant Underlying Contract". Further, several clauses specifically refer to the priority of the Underlying Contracts. For example the parties' early warning obligations only apply "without in any way…affecting the particular notice requirements of the Underlying Contracts".
Read together, these provisions undermine the impact of the Framework on the parties' behaviour for any given project. If longer-term interests are to be fostered it is a pity the Framework does not prevail over the Underlying Contracts.
Perhaps it would have been better if the Framework had addressed the fundamental issues – call-off, work volumes and project-wide contractual arrangements – rather than confining itself to goals that are best addressed on a practical level. After all, the key to long-term, collaborative working is not a piece of paper but the formation of a cooperative culture through actions such as continued team-building and ensuring that the framework commercially benefits all concerned.
If you have queries with regard to this article please contact Alex Cunliffe on [email protected] or on 020 7367 2670.