Maximum Duration of Public Sector Contracts

Maximum Duration of Public Sector Contracts

Public Sector organisations that award a Framework Agreement for longer than four years or who award a “Contract” rather than a Framework Agreement to circumvent the four-year limit for awarding Agreements are generally in breach of Regulation 33 of The Public Contracts Regulations 2015, if the reason for the award of the Framework Agreement or Contract is out of the scope of the regulations.

Commercial best practice dictates that an organisation’s Framework Agreements and Contracts should be reviewed regularly to ensure financial resources are used efficiently and effectively.

Framework Agreements and Contracts awarded within the public sector are governed by Regulation 33 of The Public Contracts Regulations 2015, which states that:

• 33—Framework Agreements.
• (1) Contracting authorities may conclude framework agreements, provided that they apply the procedures provided for in this Part.
• (2) In these regulations, “framework agreement” means an agreement between one or more contracting authorities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged.
• (3) The term of a framework agreement shall not exceed four years, save in exceptional cases duly justified, in particular by the subject matter of the framework agreement.
• (4) Contracts based on a framework agreement shall be awarded in accordance with the procedures laid down in this regulation.

Regulation 33 (4) states that Contracts must be awarded in accordance with Regulation 33, which indirectly disallows Contracts from being awarded for a period of longer than four years.

Contracts are typically drawn off a Framework Agreement in the form of Purchase Orders, which define a known value and volume of products or services to be purchased within a set period. A Purchase Order and the Framework Agreement combined becomes a separate?and distinct?Contract in its own right, meaning that several contracts may be drawn from a Framework Agreement over its duration.

A Contract that does not define a known and specific value and volume of products or services to be purchased within a set period, even though designated and named as a “Contract”, is merely a “Framework Agreement” by default and is not a Contract.

The Public Contracts Regulations 2015 do allow Framework Agreements and Contracts to be awarded for periods of longer than four years, but only in defined circumstances, such as:

• Within monopoly supply markets.
• Where markets have limited Suppliers.
• For Capital Works projects that are longer than four years.
• To allow Suppliers a return on investment for capital equipment.

However, the Utilities Contracts Regulations 2016, Concessions Contracts Regulations 2016 and the Defence and Security Public Contracts Regulations 2011 generally allow for more extended Agreements within each respective area of public procurement.

All UK public procurement regulations are expected to be amalgamated into the “Procurement Bill”, due mid-2024, which allows for eight-year Framework Agreements, with Suppliers appointed to the Framework “refreshing” their rates utilising open competitive procedures within the term of the Agreement. Only Suppliers with the most competitive “refreshed” rates will be able to retain their position on the Framework.

More articles can be found at?Procurement and Supply Chain Management Made Simple. A look at procurement and supply chain management issues to assist organisations and people in increasing the quality, efficiency, and effectiveness in the supply of their products and services to customers' delight. ??? Simon Callier. All rights reserved.

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