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Frame agreements are commonly used in project-based procurement, where high degrees of collaboration are required in the design, procurement and manufacture (or construction in some cases) of major deliverables. For instance, frame agreements are common in the Oil & Gas, Industrial Power Generation, Heavy Construction, Aerospace and other industries involved in the development and procurement of technologically advanced systems.

The intent of a frame agreement is to increase collaboration between customers and suppliers. Such collaboration benefits all parties involved in several ways.

For the customer, frame agreements:

• Reduce life cycle costs through collaborative designs.
• Reduce delivery times through standardized processes.
• Facilitates standardization of products, documentation, processes, spare parts, services, etc.)
• Encourages technology development through risk and revenue sharing.
• Improves quality.

For suppliers, frame agreements:

• Reduce marketing & sales lead times; e.g. for quotation, negotiation, contracting, etc.
• Reduce costs associated with marketing & sales processes.
• Reduce expediting, documentation, and order handling costs.
• Standardizes working processes.
• Assists in technology development through risk & revenue sharing.
• Potential for process improvements and cost reduction through improved collaboration with customers.
• Facilitates regular performance measurement and feedback.

Despite these benefits, and potentially many others not mentioned above, implementing frame agreements in many organizations can be challenging.

Some typical hurdles that must be overcome are:

• Use of collaborative agreements such as frame agreements may represent a large cultural or process change.
• Quantifying the potential value of frame agreements prior to use can be challenging.
• Individuals may feel threatened by the changes in working methods or culture represented by the use of collaborative agreements.
• Issues of trust - employing frame agreements may require a leap of faith where traditional procurement methods have been employed.
• Gaining buy in from potential frame agreement partners may require significant efforts as the strategies of the parties involved may differ.

The value of properly designed and executed frame agreements has been demonstrated in many industries. However, as with any collaborative agreement, there are serious challenges to employing such agreements in many organizations. The transition towards collaboration in major project procurement is necessary for gaining technological and commercial competitive advantage. Indeed, aligning supply networks through the use of collaborative agreements in support of advancing technological and commercial competitive advantage makes sense not only for major project procurement, but also for repetitive manufacture.

What do you think? Do you have examples of collaborative agreement successes?