The Public Procurement Act, which includes rules on framework agreements, entered into force on 1 January 2008. However, due to the transitional provisions, the rules on framework agreements have only recently taken effect. Thus, there are not yet any precedents from the higher courts in Sweden concerning the application of the rules.
The rules and the implications of the new legislation are outlined below in addition to practical problems that may arise.
The new legislation on framework agreements
The legislation on framework agreements is contained in chapter 5 of the Public Procurement Act. The legislation is a completely new feature and has no equivalent in the preceding legislation on public procurement (the Public Procurement Act (1992:1528)). Despite this, there is a long tradition of using framework agreements in Sweden, both framework agreements with a single economic operator and framework agreements with several economic operators. The legislation on framework agreements is the only one of the optional parts of the Directive that has been implemented in Swedish law. Remaining parts are still being processed by the government.
There are three types of framework agreements. Some of the new rules are generally applicable to all types of agreements, whereas some concern only one specific type.
Rules applicable to all types of framework agreements
The terms of the framework agreement may not exceed four years, save for particular reasons (chapter 5, section 3 of the Public Procurement Act). Particular reasons may include where large investments have been made which are supposed to be paid off before the expiry of the agreement; product development is needed; or special requirements in terms of continuity of provision of services exist (eg, in geriatric care). A framework agreement may concern goods, services or works contracts. It may be concluded by use of any available procedure for public procurement, including those intended for agreements with a value that exceeds the threshold as well as those intended for agreements comprising below the threshold. In Sweden, there are special rules for public procurements in which the value is below the threshold and services referred to as B-services (see Annex II B of the Directive). These rules are contained in chapter 15 of the Public Procurement Act. The award of a framework agreement may be subject to an application for revision to a county administrative court or to a claim for damages, according to the rules in chapter 16 of the Public Procurement Act. When awarding a framework agreement, the general rules contained in the Public Procurement Act are applicable, thus including the most important provision of the Act, namely chapter 1, section 9 regarding the principles for all public procurement, ie, the principles of equal treatment, transparency, etc.
Three types of framework agreements
There are three types of framework agreements:
•framework agreement with a single economic operator;
•framework agreement with several economic operators, where the terms for conclusion of contracts based on the agreement are laid down in the framework agreement; and
•framework agreement with several economic operators, where the terms for conclusion of contracts based on the agreement are not laid down in the framework agreement (the operators will submit new tenders).
Where a framework agreement has been concluded with several economic operators, the latter must be at least three in number, insofar as there is a sufficient number of economic operators to satisfy the selection criteria and of admissible tenders that meet the award criteria (chapter 5, section 5 of the Public Procurement Act).
Framework agreements with a single economic operator
Where a framework agreement has been concluded with a single economic operator, the contracting authority may, upon awarding a contract, consult the operator in writing, requesting it to supplement its tender as necessary. Supplements referred to are the fixing of prices in accordance with price adjustment clauses, specifications with regard to the provision of a service and the time for performance. The economic operator may not by specifications replace, but only concretise, information previously given in its tender.
Framework agreements with several economic operators where the terms of the contract are laid down in the framework agreement.
Where a framework agreement has been concluded with several economic operators (at least three in number, see above) and where the terms of the contract are laid down in the framework agreement, a contract based upon the framework agreement is awarded by application of these terms. The contract shall be awarded to the tenderer who has submitted the best tender based on criteria set out in the framework agreement. The framework agreement must contain provisions regarding the relative weighting or the importance in descending order of the different criteria, thus ensuring that the award of the contract is carried out objectively. In short, this means that the contracting authority shall apply an order of preference, thus ensuring that the economic operator ranked as number one is awarded the contract, and only if that operator is not able to enter into a contract the operator ranked as number two may be awarded the contract, and so on. The procurement procedure may of course be divided into different parts with regard to geographic areas, types of products, etc insofar as, for every sub-order, the order of preference established for each part is observed. When choosing a product or a service, derogation from the order of preference is possible if motivated by the needs of the patient or beneficiary, as long as this is stipulated in the specifications (tender documents) as well as in the framework agreement.
Framework agreements with several economic operators where the terms of the contract are not laid down in the framework agreement - the operators will once again compete.
Where a contracting authority has entered into a framework agreement with several economic operators and the terms of the contract are not laid down in the framework agreement, the economic operators shall once again be invited to submit a tender and will yet again compete. This part of the procedure is usually referred to as the "mini competition". The new tenders must be filed at a certain point of time. Assessment of the tenders and award of the contract is carried out in the same way as in the ordinary procurement procedure. Upon awarding the contract, the contracting authority is allowed to apply criteria different from those applied when awarding the framework agreement. The contracting authority may very well enter into a framework agreement with the operator who has submitted the economically most advantageous tender and then award the contract to the operator who has offered the lowest price. In order to do so, it must be stipulated in the tender documents of the framework agreement.
Framework agreements and applications for review
Upon awarding a framework agreement (whether to one or several economic operators), the contracting authority shall, as usual in a public procurement, inform all tenderers about the award decision. The period of claim lasts, as usual, for 10 days. A tenderer who is discontent with the award decision may apply for revision to a county administrative court.
When the framework agreement has been awarded and the contracting authority is about to award a contract, the applicable rules differ, depending on the situation. Where the authority has entered into a framework agreement with only one economic operator, and the terms for conclusion of contracts based on the agreement are laid down in the framework agreement, there is no obligation to inform about the award decision concerning the contract (there is only one operator to inform, and that is the one who has been awarded the contract). The decision to award the contract cannot be the subject of an application for review.
Nor is there an obligation to inform about the decision to award the contract where the contracting authority has entered into a framework agreement with several economic operators, and the terms for conclusion of contracts based on the agreement are laid down in the framework agreement (the authority will only follow the order of precedence and award the contract to the operator who was ranked as number one). Not even in the event that derogation is made from the order of precedence, with reference to the needs of the patient or beneficiary, is the authority obliged to inform on the award decision. However, to what extent may this exemption be called upon? There is a risk that the rank as the best tender will not result in as many awards of contract as one might expect. In similarity with the cases mentioned above, this situation cannot lead to an application for review (as long as the authority acts in conformity with the provisions of the framework agreement).
The situation is quite another where the award of contract takes place after a new procedure where the operators have again competed (mini competition). The operators have filed new tenders and are eager to find out the results of the competition. The contracting authority is obliged to inform about the award decision and await the so-called 10-day period before the contract can be concluded. During the 10-day period, it is possible for the other tenderers who submitted tenders in the mini competition to apply for review to a county administrative court.
Consequently, an award of a contract or a new invitation to submit tenders might become a very time-consuming procedure. Thus, the contracting authority should take great care to choose what contracts should be concluded using framework agreements. In my opinion, contracts suitable for framework agreements are those which comprise a great value and do not have to be concluded within a short period of time. Some examples follow.
Framework agreements with several economic operators, where the terms for conclusion of contracts based on the agreement are laid down in the framework agreement. I have been informed that contracting authorities in some countries apply the new rules in the following way.
The tenderer who has submitted the best tender is awarded a volume of 50 per cent of the goods or services procured, whereas the tenderer who has submitted the second best tender is awarded a volume of 30 per cent and the tenderer who has submitted the third best tender is awarded a volume of 20 per cent. Reportedly, all parties are content with this structure. However, I ask myself whether this type of framework agreement can really be considered as having set the terms for conclusion of contract in the agreement.
Firstly, it may be called into question why the tenderer who has submitted the best tender shall be awarded only 50 per cent, and not 100 per cent, of the entire volume? Secondly, I wonder how the contracting authority is supposed to handle the promised volumes - what happens, for instance, when the tenderer guaranteed 30 per cent of the volume is afforded 40 per cent, at the expense of another operator? Thirdly, I question the use of this method from a commercial point of view. I suspect that economic operators, being aware at the outset of the possibility to submit a tender covering, for instance, 30 per cent or 50 per cent of the volume, would submit more advantageous tenders. However, since all operators seem content with it, the method is likely to be put into practice in Sweden as well but this is yet to be seen. Reportedly, the method is accepted by parties in the medical device industry.
Framework agreements with several economic operators where the economic operators will again compete.
I have already experienced the following situation and can fully understand the disappointment of the tenderer.
A contracting authority is about to conclude a framework agreement and is to award the agreement to the tenderers who have submitted the most economically advantageous tenders (the operators must be at least three in number). The contract is to be awarded, in a new procedure where the operators are again in competition, to the tenderer who has offered the lowest price. It follows from the wording of the statute that it is possible to apply different methods for awarding the contract in these situations. However, this is allowed only in sofaras it is stipulated in the specifications. Let us say that the contracting authority receives only three tenders fulfilling the mandatory criteria. Is the authority obliged to evaluate the tenders on the basis of the criteria set out in the specifications? Notwithstanding the result of such an evaluation, all three tenderers will enter into the framework agreement. When a contract is to be awarded a new procedure takes place, where the operators are yet again in competition. In the case I am thinking of, the contracting authority abstained from establishing which tender was the most economically advantageous one. When a contract was to be awarded on the basis of the framework agreement, a new procedure was initiated where the operators were judged solely on the basis of the criterion of the lowest price. This means - and this was the reason for the disappointment of the tenderer - that the tenders are never judged with reference to the principle of the economically most advantageous tender on the basis of price, quality, reliability concerning deliveries and so on. The only thing evaluated is the price. The tenderer, who has worked hard on his offer in order to obtain the highest score, will never see his tender being evaluated. No wonder this tenderer is disappointed - as we all know, a lot of time and money is spent on each tender. I hope the rest of our markets are more competitive, so that the situation just described will not have to occur.
Is the use of framework agreements a detriment to small and medium-sized companies?
My answer is: it depends.
Where the contracting authority is contracting not only for its own part but for several other authorities and, at the same time, requiring tenderers to submit tenders covering the entire demand (ie, the entire demand of all the contracting authorities), framework agreements definitely constitute a problem for small- and medium-sized companies, and the answer to the question is yes. A comprehensive procurement like the one just mentioned will obviously favour large operators at the expense of small ones.
If, on the other hand, the contracting authority procuring for several other authorities, divides the contract into different parts with regard to geographic areas or types of products and allows the operators to submit tenders covering some or all parts of the contract - this is a frequently used method in Sweden despite the fact that we do not have rules on central purchasing organisations - framework agreements are not a problem for small- and medium-sized companies. In these situations, the answer to the question is no.
Hence it is important that all contracting authorities, when planning their procedures for awarding framework agreements, bear in mind that it is important to enable participation in procurement procedures for as many operators as possible. This can be done through appropriate apportionment of the contract, which does not have to be made on the basis of geographic area, type of product or service, but can refer to a contracting authority of a certain size, etc. We all have an interest in attaining as competitive markets as possible!