João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org

João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org

Framework ContractsFramework ContractsFramework ContractsFramework Contracts

DefinitionsDefinitionsDefinitionsDefinitions

EC: Framework Agreements = agreement between EC: Framework Agreements = agreement between one/more contracting agencie(s) and economic one/more contracting agencie(s) and economic operator(s) … to establish the terms governing operator(s) … to establish the terms governing contracts to be awarded during a given period … contracts to be awarded during a given period … with regard to price and … the quantities with regard to price and … the quantities envisagedenvisaged

USA: Government-Wide Acquisition Contracts USA: Government-Wide Acquisition Contracts (GWAC) Indefinite Delivery/Indefinite Quantity (GWAC) Indefinite Delivery/Indefinite Quantity (IDIQ), Multiple Award Schedules (MAS) = multiple (IDIQ), Multiple Award Schedules (MAS) = multiple standing contracts with subsequent competition standing contracts with subsequent competition for task or delivery ordersfor task or delivery orders

DefinitionsDefinitionsDefinitionsDefinitions

UNCITRAL: Framework Agreements = transaction UNCITRAL: Framework Agreements = transaction to secure the supply of a product or service over a to secure the supply of a product or service over a period of time (periodic/recurrent purchase period of time (periodic/recurrent purchase arrangement, periodic requirements arrangement, arrangement, periodic requirements arrangement, periodic supply vehicle)periodic supply vehicle)

4

back office function

sourcing considerations

largely goods

suppliers

simple process

low value, low risk

central to strategic management

strategic business decisions

complete service solutions

strategic partners

complex contracts & relationships

high value, high risk

Changing Nature of Government BuyingChanging Nature of Government Buying

Government procurement is being driven by budget and performance expectations to become more complex and strategic

5

Value ChainValue Chain

Re-Focus of Procurement Systems and Re-Focus of Procurement Systems and CapabilitiesCapabilities

Re-Focus of Procurement Systems and Re-Focus of Procurement Systems and CapabilitiesCapabilities

Potential GainPotential Gain

Simple Procurement

Basic Expertise

Codified Process

Compliance Management

Transactions Technology

Complexity & Risk

Complexity & Risk

Complex Procurement

High Level Expertise

Risk Process

Performance Management

Knowledge Technology

RationaleRationaleRationaleRationale

Facilitated by electronic means, framework Facilitated by electronic means, framework agreements are increasingly applied in public agreements are increasingly applied in public procurementprocurement

Countries worldwide, including client countries (e.g. Countries worldwide, including client countries (e.g. LCR), use framework agreements as part of their LCR), use framework agreements as part of their public procurement systemspublic procurement systems

EU Directive refers to framework agreements and EU Directive refers to framework agreements and dynamic purchasing systemsdynamic purchasing systems

Rationale Cont.Rationale Cont.Rationale Cont.Rationale Cont.

Revised Procurement Model Law of UNCITRAL will Revised Procurement Model Law of UNCITRAL will include framework agreementsinclude framework agreements

USA: 40% of $400 billion federal procurement USA: 40% of $400 billion federal procurement volume through interagency framework agreementsvolume through interagency framework agreements

Benefits and RisksBenefits and RisksBenefits and RisksBenefits and Risks

Benefits include:Benefits include: reduced transaction costsreduced transaction costs increased efficiency of the procurement processincreased efficiency of the procurement process cost savings by aggregated demandcost savings by aggregated demand mandatory use – reducing maverick buyingmandatory use – reducing maverick buying

Risks include:Risks include: lack of transparency and competitionlack of transparency and competition market distortion/concentrationmarket distortion/concentration Potential for misapplication in procurement of Potential for misapplication in procurement of

ServicesServices discrimination against SMEsdiscrimination against SMEs

Standard ComponentsStandard ComponentsStandard ComponentsStandard Components

Typically for common use goods, services, or Typically for common use goods, services, or worksworks

Competitive selection of and award to Competitive selection of and award to one/multiple economic operators (EO) with terms one/multiple economic operators (EO) with terms and conditions set out in the framework and conditions set out in the framework agreementagreement

Subsequent purchase orders (call-offs, contracts, Subsequent purchase orders (call-offs, contracts, etc.) based on the terms and conditions set out in etc.) based on the terms and conditions set out in the framework agreementthe framework agreement

Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)

Traditional Framework Agreements (Model 1):Traditional Framework Agreements (Model 1): One EO and defined terms (period, min/max One EO and defined terms (period, min/max

quantity, price)quantity, price) Option of multiple EOs (purchasing orders Option of multiple EOs (purchasing orders

based on lowest price or availability)based on lowest price or availability) Facilitated by E-CataloguesFacilitated by E-Catalogues

Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)

Closed Framework Agreements (Model 2):Closed Framework Agreements (Model 2): Multiple (at least 3) EOsMultiple (at least 3) EOs Not all terms need to be definedNot all terms need to be defined Competitive purchase orders (e.g. ERA, Competitive purchase orders (e.g. ERA,

quotations)quotations) Open Framework Agreements (Model 3):Open Framework Agreements (Model 3):

Same as Model 2Same as Model 2 Admit new EOs (e.g. DPS)Admit new EOs (e.g. DPS) No obligation for purchaser/EONo obligation for purchaser/EO

IssuesIssuesIssuesIssues

Type of goods, services, worksType of goods, services, works

Legal Obligations for purchasers and Eos – Legal Obligations for purchasers and Eos – mandate Vs non-mandatedmandate Vs non-mandated

Number of framework awardees and equal Number of framework awardees and equal treatment within framework agreementtreatment within framework agreement

Terms of framework agreementsTerms of framework agreements

Issues Cont.Issues Cont.Issues Cont.Issues Cont.

Terms of framework agreementsTerms of framework agreements

Competition within framework agreementsCompetition within framework agreements

Thresholds for framework agreements and Thresholds for framework agreements and purchase orders within a framework agreementpurchase orders within a framework agreement

Examples (Practice)Examples (Practice)Examples (Practice)Examples (Practice)

ChileCompra – electronic catalogue for frequently-ChileCompra – electronic catalogue for frequently-demanded products allows government agencies demanded products allows government agencies to purchase without the expense and delays of to purchase without the expense and delays of inviting bids (average price reductions of 7-10%)inviting bids (average price reductions of 7-10%)

WAEMU Directive – framework agreements WAEMU Directive – framework agreements typically based on max/min quantity or value for typically based on max/min quantity or value for the duration of one year – with option to extend the duration of one year – with option to extend for another yearfor another year

Examples (Practice)Examples (Practice)Examples (Practice)Examples (Practice)

USA GSA – Millenia Lite = MA IDIQ GWAC for IT, USA GSA – Millenia Lite = MA IDIQ GWAC for IT, period of three years with option of 7-year period of three years with option of 7-year extension, $ 20 billion ceiling, competed task extension, $ 20 billion ceiling, competed task order requests among prime contractors (e.g. $ order requests among prime contractors (e.g. $ 107.5 million task order to CSC)107.5 million task order to CSC)

QUICK GAINS Opportunity for Savings

QUICK GAINS Opportunity for Savings

Provide information and concrete proposals to Provide information and concrete proposals to achieve quick economic savings in government’s achieve quick economic savings in government’s expenditures (purchasing).expenditures (purchasing).

Two steps: (1) Diagnostic and proposals of cost Two steps: (1) Diagnostic and proposals of cost reduction strategies; (2) Implementationreduction strategies; (2) Implementation

Effective entry point to engage country clients to Effective entry point to engage country clients to pursue significant subsequence changespursue significant subsequence changes

Key ingredients: Clients’ ownership, CMU/SMU’s Key ingredients: Clients’ ownership, CMU/SMU’s commitment, management expectation, team commitment, management expectation, team workwork

Provide information and concrete proposals to Provide information and concrete proposals to achieve quick economic savings in government’s achieve quick economic savings in government’s expenditures (purchasing).expenditures (purchasing).

Two steps: (1) Diagnostic and proposals of cost Two steps: (1) Diagnostic and proposals of cost reduction strategies; (2) Implementationreduction strategies; (2) Implementation

Effective entry point to engage country clients to Effective entry point to engage country clients to pursue significant subsequence changespursue significant subsequence changes

Key ingredients: Clients’ ownership, CMU/SMU’s Key ingredients: Clients’ ownership, CMU/SMU’s commitment, management expectation, team commitment, management expectation, team workwork

QGs in LAC through the use of Framework QGs in LAC through the use of Framework contractscontracts

QGs in LAC through the use of Framework QGs in LAC through the use of Framework contractscontracts

Country Status Categories Analyzed

Estimated SavingsConservative/ Aggressive in

US$M

Lending /non lending instruments

Ceara (Brazil) Implementation 8 50

Actual savings

Loan component

Peru PA 8 87/540 OS funded pipeline component

Panama Implementation 8 44/68

40m actual savings

1st phase OS in 2005 (CPAR). 2nd phase, under a TA, and supervised under IDFs

Guatemala PA 8 64/103 OS 2005 ( PHRD pipeline component)

Costa Rica PA 10 308/434 OS 2007. 1st phase linked to PERs

Honduras PA 10 56/101 OS 2007. Second phase to be implemented under a TA (Note)

El Salvador PA 10 40/80 TA 2007

Mexico PA 8 6373/ 10,451 OS, 2007. 1st phase linked to the CPAR

18

CASE: Difference in prices purchasing bond paper is up to 37% CASE: Difference in prices purchasing bond paper is up to 37%

Sec. O

bras

Pú

blicas

Precio por Papel [Lempira resma]

Un

iversidad

Au

tónom

a

Bond Paper

53.50; 650 u

53.75; 80 u

Sec. d

eS

egurid

ad

81.20; 200 u+ 25%

76.72; 150 u

84.00; 600 u

82.88; 50 u

Sec. d

eE

du

cación

72.80; 200 u

67.20; 750 u

61.60; 1100 u

Sec. d

eS

alud

Sec. d

eF

inan

zas

61.56; 1012 u

69.44; 3 u

61.56; 1012 u

59.34; 700 u

Segu

ridad

Social

54.58; 1832 u

53.00; 1724 u

66.25; 1420 u63.20

PromedioPonderado - 12%

Implications for the Bank - LACImplications for the Bank - LACImplications for the Bank - LACImplications for the Bank - LAC

LAC - many countries adopting framework LAC - many countries adopting framework contractscontracts

More transparent alternative to shoppingMore transparent alternative to shopping

Framework contract prices better than individual Framework contract prices better than individual NCB e.g. Computers in ChileNCB e.g. Computers in Chile

Implications of FA for the Bank - LACImplications of FA for the Bank - LACImplications of FA for the Bank - LACImplications of FA for the Bank - LAC

ChileCompra – framework agreements (electronic ChileCompra – framework agreements (electronic catalogue) accepted as alternative to shoppingcatalogue) accepted as alternative to shopping

Future - challenge to ensure that Bank funded Future - challenge to ensure that Bank funded procurement can be carried out through procurement can be carried out through framework contracts whilst not closing framework contracts whilst not closing opportunities for NCBopportunities for NCB

João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org

João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org

Framework ContractsFramework ContractsFramework ContractsFramework Contracts

Thank YouThank YouThank YouThank You