Gaps in the framework

The recent decision of BAA to turn its back on framework agreements has caused a stir in the world of procurement. If this is part of a larger trend away from partnering, and if the relationship between the parties becomes more hard-nosed, they may encounter a legal problem with their framework agreements. The problem is often glossed over, even in the standard forms of agreement, but a recent decision by the Scottish courts may be relevant.

A framework may simply be a loose arrangement under which the employer has little more than a list of preferred contractors to whom it will go to negotiate contracts. More often, particularly in the public sector, the employer expects to be able to place immediate orders with a contractor with minimal negotiation of the terms of the underlying call-off contract. Indeed, for public works governed by the Public Contracts Regulations, the criteria for awarding the call-off contract should be set out in the framework agreement itself. The authority just applies these criteria – which may simply be a question of who is cheapest – and issues a works order.

What happens about project-specific terms that remain to be agreed, in particular the date for completion and liquidated and ascertained damages (LADs)? In a construction or engineering framework contract, one cannot usually say, for example, that any call-off contract with a value of less than £20,000 will be carried out within four weeks, any contract up to £50,000 within six weeks, and so on. The same point applies to LADs, where it may be difficult to apply a set rate per week to different sizes of project.

The standard forms of contract skate over this issue. The NEC3 Framework Agreement 2005 says that after the employer has decided what work it requires, it asks the supplier for a quotation, which will probably include a time estimate. The employer can accept this or reject it, but the contract does not say what happens when the employer wants to proceed with a different timescale.

The JCT Framework Agreement 2007 is similar. Again, the employer may accept or reject the provider’s response for any particular task, but it is not clear what happens if the parties cannot agree a timescale. The assumption seems to be that the underlying call-off contract will just deal with this.

Of course, in many cases the parties are able to proceed amicably and reach agreement as to time. The real problem occurs where agreement is not reached, but the work proceeds anyway. In these cases, what is the status of a clause saying the parties must use reasonable endeavours to agree any outstanding terms (including time)? As any lawyer will tell you, an “agreement to agree” is not a legal contract at all. In a recent Scottish case, R&D Construction Group Ltd vs Hallam Land Management Ltd, the court nevertheless found a way to give effect to a clause of this nature.

Hallam was a developer that had an option to purchase land from the owner. It entered into a further conditional contract with R&D to sell the land on to them. In that contract, it agreed to use reasonable endeavours to negotiate a purchase price with the owner. Later, it argued that this provision was not enforceable in law as it was nothing more than an agreement to agree.

The court rejected this, and said that the clause was enforceable. A key factor in its decision was that the reasonable endeavours clause was directed towards a particular term, namely the price. It was not a case of having to use reasonable endeavours to agree a complete contract, for example.

The court was also anxious to uphold what seemed to be the parties’ intentions. The Hallam case, although of some assistance, is not binding in England and was not about a framework agreement. There remains a question mark about the enforceability of clauses in framework agreements that require parties to agree a completion date (and LADs) in their call-off contracts.

The preferable course is to ensure that there is clear drafting setting out the criteria against which a reasonable contract period is to be agreed. The agreement should also provide that any dispute about what the completion date is to be should be resolved immediately under the relevant contract procedures.