The JCT Framework Agreement 2007 (the “FA 07”) is now on the shelves and promises to be a credible and functional standard form of framework agreement for the construction industry.
Framework agreements can be a very useful contracting tool. When used effectively they assist the parties in avoiding the pitfalls identified in Sir John Egan’s report “Rethinking Construction”. That report outlined the shortcomings of the industry’s approach to conventional procurement, and spurred the industry on to pursue a more collaborative approach to project procurement and development.
Why use framework agreements?
Framework agreements can be very flexible arrangements, whilst at the same time providing a structured approach to contracting. They encourage the parties to move away from their traditionally more adversarial approach to risk allocation, and the fragmentation of construction roles. This allows them to work together and better understand each others’ businesses and values, so that they can reap the benefit of such understanding in future sustainable improvements to project development. For clients with large build programmes or public sector clients using a framework arrangement to procure future projects, this enables them to avoid the repetition of renegotiating contracts on a project-by-project basis, and allows them to best allocate their resources.
A bit of history
Back in 2005, the JCT launched its original standard form of framework agreement (the “FA 05”) as part of its rejuvenated 2005 suite of standard contracts. The prospect of a standard form framework agreement appealed to the industry. The FA 05’s stated goals and objectives were lauded, but unfortunately the form was not well received. Concerns were raised about its utility, including in particular whether it was suitable for use by public sector clients. (Please see 'New JCT Framework Agreement: a missed opportunity?')
Key concerns were:
- EU Procurement Law compliance - essential for public sector clients;
- Relationship with underlying contracts and the impact on the supply chain;
- Drafting issues - potential for lost opportunity claims.
Making a comeback?
Two years on, the JCT form of framework agreement has returned as the revitalised JCT FA 07. To its credit, the JCT has listened to its critics and admitted that the FA 05 “did not fulfil the needs of all its users”. Time has been taken to address the concerns raised with the previous form, but does it deliver second time around?
- The FA 07 is off to a promising start by abandoning its non-binding option, and representing itself as a straightforward binding framework agreement;
- The agreement is now designed to work with a variety of underlying contracts across the supply chain (albeit unsurprisingly with a preference for working in conjunction with the JCT suite of construction contracts), and as such is couched in terms of an “Employer” and a “Provider”;
- Careful drafting has been included to clarify the issues in respect of claims for lost opportunity, by stipulating that the FA 07 gives a provider an opportunity to tender for work on future projects, but by no means guarantees that work will be placed with the provider;
- The issue of EU procurement law compliance has been addressed in order that the form of framework agreement may be utilised by public sector clients without the need for substantial amendment.
Entering into the spirit of things!
The JCT has gone to great lengths to deal with the industry’s concerns about using its standard form of framework agreement. However, the FA 07 will only ever be truly useful in creating a collaborative working approach to projects and their procurement when the parties approach it in a spirit of co-operation.
The FA 07 has to work alongside the terms and conditions of the underlying contracts. So the parties still have to go through the process of negotiating the terms and conditions which are to be “called-off” and used for specific projects and the associated pricing framework.
More importantly both parties have to be comfortable with the agreed terms and prices in the medium term and for projects which may not yet have been outlined in detail.
The fact that where there is a conflict or discrepancy between the terms of the FA 07 and the underlying contract the provisions of the underlying contract are to prevail is a sensible approach. However, the reality is often that the collaborative and co-operative spirit requirement embodied in the FA 07 is superseded by a more partisan approach taken in the underlying contracts.
A viable option?
If clients choose to enter into framework arrangements then the fact that the FA 07 comes from the respected JCT stable of standard form contracts will certainly make it an option for consideration. However, we will have to see what the industry makes of it in practice. Indeed, in the current “credit crunch” climate, the relaunch of the FA 07 may be timely, with both employers and contractors (or “providers”, as they are known) looking to work with those they know and trust. With FA 07 they may be able to take projects forward, with the certainty of an agreed level of commitment and a pricing framework, in what is an uncertain market.