Cooperation with a new counterparty begins with discussing the terms of the transaction and concluding an agreement, for example, for the supply of products or the provision of services. Situations often arise when the parties managed to agree on the main positions, but negotiations are still underway on the specific terms of cooperation. At this stage, it is necessary to consolidate the agreements reached; for these purposes, a framework agreement is drawn up, a sample of which we will provide below. Another name for this document is an open-ended agreement.
Framework agreement: what is this document?
A framework agreement is, in simple words, a document that contains the general terms of the transaction and preliminary agreements of the parties on how further cooperation will take place. The obligations of the parties can be clarified and specified by concluding separate agreements, submitting applications by one of the parties, or in any other way provided for by the framework agreement.
Drawing up a framework agreement is accompanied by certain risks. For example, the presence of ambiguous wording gives the counterparty the opportunity to evade fulfillment of obligations. An example of a framework agreement is an agreement on the construction of a building, when the text of the document states that one business entity undertakes to build a building in accordance with the requirements of another entity, but the specific work and deadlines for their completion are not indicated; they will be specified in another separate agreement.
Until June 2015, Russian legislation did not have the concept of a “framework agreement”. In practice, the parties to the transaction used a similar document - an organizational agreement. The term was introduced by law dated March 8, 2015 No. 42-FZ. The definition of a framework agreement and the procedure for its application are given in Art. 429.1 of the Civil Code of the Russian Federation.
Options for specifying conditions
Methods for specifying conditions based on clause 1 of Art. 429.1 of the Civil Code of the Russian Federation, the following can be distinguished:
- conclusion of a separate agreement;
- submission of applications by one of the parties;
- otherwise.
Now more details.
1. Conclusion of a separate agreement. It can be drawn up in different ways: an application, an additional agreement, a specification and other related documentation.
Then there are two more options.
In the first case, the framework agreement itself is not a transaction. This applies to cases where essential conditions are uncertain. Until they are agreed upon by the parties, no legal consequences arise. The existing conditions will come into effect only upon agreement on the essential ones.
This option is the most common in practice and is implemented at the stage of negotiations between the parties.
The second option is to include conditions of an organizational nature that are valid until the essential ones are agreed upon. For example, arbitration clause, representations of circumstances, clause of applicable law, etc.
Then the framework agreement itself gives rise to certain legal consequences for the parties, but only in terms of organizational conditions. The rest come into effect after agreeing on the essential terms in additional specific agreements.
2. Submission of unilateral applications.
If we consider the framework agreement in the sense defined above, then its essential conditions remain uncertain. The counterparties agree that specification will be carried out only by one of the parties by completing and sending applications.
We use the same delivery agreement as an example. The name and/or quantity of the goods in this case are determined in the application sent by the buyer to the supplier. From the moment it is received by the supplier, the condition on the quantity of goods shipped is considered agreed upon.
To avoid situations of impossibility of performance, when using this option, the limits within which the party can express his will are preliminarily outlined, defining the missing essential condition.
For a supply agreement, this is the determination of the upper limit on the volume of goods that the buyer may request. If not only the quantity, but also the name is determined, it is provided that the shipment is carried out if the requested goods are available at the supplier’s warehouse.
3. Other methods include specification in the form of acceptance of the application, if the conditions enshrined in it do not go beyond the outlined limits.
A bit like an option, the scheme is approximately the same. One of the counterparties receives the right to demand, on the terms determined by him alone, the conclusion of an agreement specifying the essential conditions.
The inclusion of such a rule on acceptance is more formal in nature, but is permitted by law.
How does a framework agreement differ from others from regular and preliminary agreements?
The subject of a standard contract is the provision of specific services, the implementation of a specified list of works, the supply of goods with a clearly defined range and quantity, etc. Without specifying these conditions, the contract will be considered invalid.
The preliminary agreement specifies only the subject of the future transaction (works, goods, services), while the parties to the transaction are obligated to conclude the main contract in the future.
A framework agreement for the provision of services, performance of work or supply of products establishes only the general rules of interaction between the parties for the execution of a transaction without agreeing on its subject matter. The document does not require the mandatory conclusion of a main contract in the future.
Official website of the Supreme Court of the Russian Federation
The new resolution of the Plenum of the Supreme Court explains to the courts how to resolve disputes about preliminary, public, subscription agreements and how to evaluate assurances about the circumstances. In addition, the clarifications guide the courts to preserve the legal force of contracts whenever possible. For example, when some formalities are not observed, but the participants have confirmed the validity of the agreement.
1
Conclusion of an agreement
The Plenum of the Supreme Court clarifies: a contract can be concluded through an offer and acceptance, through joint development and agreement of terms during negotiations, or in other ways when the parties have clearly made clear their will to enter into a transaction.
Participants must agree on all material terms - these are those that are required by law or agreement. For example, if a party declared the need to agree on a price, this becomes mandatory, and the provision of the Civil Code on the regular price in such transactions no longer applies.
If the form of the agreement is not observed, this does not mean that it has not been concluded, if the parties have agreed on all the essential terms. The Plenum also enshrines the principle of estoppel: if someone has confirmed the validity of a contract, he cannot in good faith refer to its non-conclusion.
The rules for sending an offer and its acceptance are explained. The document answers the question of what to do with an acceptance that arrived after the deadline. To do this, you need to determine who is to blame for the delay. For example, a courier delivery service or the acceptor himself, who sent the signed agreement deliberately late. But even in the second case, the offeror can immediately declare that he accepts the acceptance - this will correct the situation. It can also confirm late acceptance if it begins to execute the contract.
2
Public contract
Public contracts are concluded by all people who buy something in a store, go to a cafe, and so on. At the same time, shops and cafes are obliged to serve everyone and cannot refuse without good reason.
But the laws do not have clear criteria for which contracts are public and which are not. The Plenum gives examples of public contracts - this is a contract for household work, water supply, and compulsory motor liability insurance. At the same time, a loan agreement, an agreement for participation in shared construction, or a voluntary property insurance agreement is not a public agreement.
The price may vary for different categories of clients. For example, for pensioners, students, loyalty card holders.
3
Preliminary agreement
A preliminary agreement is an agreement between the parties who undertake to enter into a main agreement in the future. At the time of concluding the preliminary contract, the seller may not have the goods they want to buy. It's not obligatory. It is enough to describe the characteristics of the item that is about to be made.
If the preliminary agreement does not contain essential terms, such as the rental price, then this is not a problem. The parties can agree on the terms later, and if they disagree, they can go to court, which will make a decision.
But if the preliminary agreement contains conditions for partial or full payment, then such an agreement should be regarded as a purchase and sale agreement with advance payment. This will help protect the interests of those who purchase housing.
In judicial practice, there are often cases in which one party forces the other to enter into a main agreement on the basis of a preliminary one. The Plenum of the Supreme Court clarified how courts should write decisions on such cases: in the final act it is necessary to indicate the subject and conditions of the main agreement, as well as the moment from which it is concluded. There is no need to formalize or sign anything else – the agreement comes into force based on the court decision.
4
Framework agreement
Such an agreement may establish organizational, marketing and financial terms of the relationship, and contain the terms of the agreement, the conclusion of which is related to the framework agreement. At the same time, in the future, the parties must specify the terms of the framework agreement by concluding separate agreements.
The terms of a framework agreement are part of a subsequently concluded separate agreement, the Supreme Court reminds, but only if such agreement as a whole corresponds to the intention of the parties expressed in the framework agreement. “The absence of a reference to a framework agreement in a document executing a separate agreement does not in itself indicate the non-application of the terms of the framework agreement,” explains the Plenum.
5
Subscription agreement
This is an agreement that provides for the subscriber to make certain, including periodic, payments for the right to demand from the contractor the services provided for in the agreement. Payment for it can be established in the form of a fixed payment, including periodic, or in another form that does not depend on the volume of services requested from the contractor.
If the subscriber has not taken action to obtain his performance, this still does not relieve him of the obligation to pay under the contract. But the law or contract may provide otherwise.
6
Representations about the circumstances
The Plenum Resolution enshrines the idea of protecting a person who relied in good faith on representations. If the seller promised a certain quality or properties of the goods, but in reality everything turned out to be wrong, the rules on the quality of the goods and the agreed liability measures are applied simultaneously. As the Supreme Court specifically emphasizes, this approach applies to the purchase and sale of shares or interests.
Not only the party to the contract, but also a third party can give assurance about something. In this case, it is presumed that it has a legitimate interest: the third party is liable on a general basis to the one who relied on his assurances.
7
Interpretation of contracts and their legal qualification
Courts should not limit themselves to Art. 431 of the Civil Code, which defines the rules for the interpretation of treaties (for example, that they must be interpreted literally). When interpreting, it is necessary to take into account the basic principles of civil legislation, provisions of the Civil Code, laws and other acts.
The terms of the contract must be interpreted so that no one takes advantage of his illegal or dishonest conduct.
If there is a dispute about the validity or conclusion of an agreement, the court should strive to preserve the agreement and take into account the presumption of reasonableness and good faith of the participants. If the terms can be interpreted in several different ways, but one of them leads to invalidity or non-conclusion, then priority should be given to the option that retains the force of the contract.
If the contract is mixed, that is, it contains elements of different contracts, the rules on the relevant contracts are applied to the relations of the parties under it, unless otherwise follows from the agreement between the parties or from the essence of the mixed contract. And if from the contents of the contract it cannot be established which of the stipulated contracts it relates to, then the rules on various contracts may be applied to the relations of the parties - by analogy with the law.
Maxim Varaksin
When is a framework agreement needed?
It is recommended to draw up a framework agreement for the supply of products or provision of services, in particular in the following cases:
- The parties to the transaction plan to cooperate for a long period of time, but the specific conditions for carrying out mutually beneficial activities have not yet been determined and may change.
- There is a need to record the agreements reached in the case when one of the parties has not yet decided on the basic requirements of the contract.
- It is necessary to provide conditions for all transactions concluded in the future.
- The exact volumes of product supply have not yet been established.
A framework agreement can be concluded for the supply of products, performance of work or provision of services. The document is suitable for use in a variety of areas: trade, cargo transportation, construction, etc. Also, this agreement is drawn up when placing state and municipal orders, when payment is made by bank transfer from the budget.
What conditions should be included in the framework agreement?
The document does not have a unified template; when drawing it up, you should be guided by the standard requirements for drawing up contracts. Mandatory terms of the framework agreement:
- Type of services, work, goods, indicating the document that specifies the subject of the transaction (name, price, quantity, etc.).
- General rules of interaction reached by the parties to the transaction.
- Procedure for fulfilling obligations.
- The procedure for supplying products (providing services, performing work) and the procedure for acceptance.
- Payment procedure.
- The moment of transfer of ownership.
- Responsibility of the parties to the transaction.
- Dispute resolution procedure.
- The procedure for exchanging documents.
- The procedure for agreeing on terms and conditions for additional contracts, agreements and other documents.
- The amount of penalties that will apply if the parties violate the agreed terms.
A framework agreement for services or supply of products is concluded once, and subsequently the parties exchange additional agreements, specifications, applications and other clarifying documents, which must indicate that they are being drawn up for the purpose of executing the framework agreement. Relations between the parties that are not regulated by additional agreements are governed by the general provisions of the framework agreement.
Application of framework conditions
Here we will touch upon paragraph 2 of Art. 429.1 of the Civil Code of the Russian Federation. It contains the rule that the general conditions contained in the framework agreement are subject to application to relations that are not regulated by separate agreements or in cases where they are not concluded.
What is it about?
Initially, the parties agreed on a number of conditions; they agreed to specify the rest in the future in one way or another. For the time being, they simply “lie” and wait until specification is carried out.
When this has happened, the framework conditions begin to operate in addition to the clarifying ones.
If two documents contain contradictory terms, the later, more specific ones, apply.
This applies to situations where separate agreements have been concluded. A similar rule applies if the framework conditions have not been clarified. However, this applies to a greater extent to contracts with open terms, in which essential terms have already been agreed upon.
Additional agreements may not be concluded for various reasons? If only because the parties simply cannot agree on the specific terms. Then only the provisions of the contract with open terms apply.
However, the problem of open conditions still remains. They need to be installed somehow! There are two options: either an analogy of the law under Art. 6 of the Civil Code of the Russian Federation, or transferring the dispute to resolve differences to the court. In order to apply the latter option, this possibility should be included in the agreement in advance.
With a framework agreement where essential terms are uncertain, the situation is more complicated.
Let's take delivery again. How to apply the analogy of law when the name of the product and its quantity are not agreed upon? That's right, no way.
Relations between the parties have not yet developed. I don’t know how they will interpret clause 2 of Art. 429.1 of the Civil Code of the Russian Federation courts. Hopefully restrictive. Otherwise it will be nonsense. General conditions cannot be applied to anything, since instead of an object there is an empty space.
If the framework agreement contains organizational conditions, then this rule applies only to them.
Finally, it is used when unilateral applications are used as a method of specification.
How to draw up a framework agreement correctly
The document will be considered valid if it is signed by all parties to the transaction. Certification with a seal is required if available.
A framework agreement must always be in writing, regardless of its duration. Registration with government agencies is not required, even if registration of a subsequently concluded additional agreement is required.
Standard structure of a framework agreement:
- Preamble. Here they indicate the name of the document, the date and place of preparation, information about the parties to the transaction.
- Section "Subject of the agreement". The name of the goods or services, the procedure for delivery and acceptance, and deadlines are listed here.
- Section “Procedure for calculations”.
- Section “Rights and obligations of the parties”.
- Section "Responsibility of the Parties".
- Section "Additional conditions".
- Details and addresses of the parties.
Thus, a framework agreement is, in simple words, a document that defines the boundaries and framework of interaction and terms of cooperation between the parties. It occurs in cases where the parties to the transaction have reached agreement on general issues, but have not determined, for example, the specific volume and cost of supplies, work, or services. These issues are subject to clarification in additional agreements and other documents that the parties will conclude in the future.
In what cases is a framework agreement beneficial for entrepreneurs and how to draw it up correctly
This type of agreement is convenient for those companies that have been interacting with their counterparties for a long time. For example, they supply various goods. In this case, there is no need to sign several contracts. It is enough to conclude a framework agreement and sign additional agreements with delivery details.
The feasibility of concluding a framework agreement
• No need to conclude multiple contracts if one counterparty can resolve several issues of the entrepreneur.
• No need to agree on the terms of cooperation every time the company needs a service.
• No need to specify the subject of the contract, which can be clarified later.
• No need to pay for the right to carry out individual transactions under the terms of a general agreement (that is, as a rule, when concluding a framework agreement, there is no subscription fee).
• In the event that the customer does not know the exact volume of purchased goods (works, services).
• The customer has a complex organizational structure, implying the presence of many internal initiators.
Conditions for concluding a framework agreement
If the parties bring the matter to court consideration, the court will take into account the literal meaning of the words and expressions contained in such an agreement, and in case of ambiguity on individual points, it will compare the terms with the agreement as a whole.
It would be advisable to include in the framework agreement a condition on the procedure for approving individual orders for specific services (performance of work) and general terms of interaction when executing an order (providing a service).
As for the procedure for approving orders, the parties are free to indicate a method of interaction that is convenient for them. The law does not limit the right of the parties to choose a convenient method of communication and agreement on documents.
For example, the parties may limit themselves to simple electronic correspondence (Letter of the Federal Tax Service of Russia dated 06/07/2018 No. SD-4-3/11054, Resolution of the Moscow District Court dated 01/15/2018 in case No. A40-18442/2017) or coordinate orders using a price list executor, which is an integral annex to the contract. In this case, of course, it is important to include in the terms of the framework agreement the conditions under which the contractor will confirm or reject applications received from the customer. Thus, among other conditions, it is necessary to indicate: a list of information that the order must contain, or the obligation to draw up an order in a certain form, enshrined in the annex to the contract; method of sending an order; terms of consideration and confirmation of the order by the contractor.
The general conditions for interaction between the parties include the following: type of service (work), rules for accepting services (work), payment procedure, responsibility of the parties, procedure for resolving disputes, procedure for amending and terminating the contract, duration of the contract.
Application of a framework agreement in practice
When preparing documents within the framework of the execution of a framework agreement, it is necessary to indicate in the primary documents about (“in pursuance of”) the framework agreement. Also, if the parties sign additional agreements, it is necessary to make reference to the date and number of the additional agreement.
At the same time, if the parties did not indicate in the closing documents the basis for their preparation, there is no need to be upset. If the transaction as a whole corresponds to the intentions of the parties as set out in the framework agreement, then the terms of the agreement apply to such a transaction (clause 31 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 25, 2018 No. 19, clause 9 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated February 25, 2014 No. 165) .
Judicial practice proceeds from the fact that if there are no other contractual obligations between the parties and there is no reference to the framework agreement in the closing documents, the courts interpret that individual supply contracts are considered concluded in accordance with the framework agreement (Resolutions of the Moscow District Court dated January 22, 2018 in the case No. A40-175222017, AS of the North-Western District dated 06/01/2016 in case No. A56-54136/2015, dated 08/22/2016 in case No. A56-64509/2015).
But there is also the opposite practice. Thus, in case No. A75-723/2014, the court came to the conclusion that the presented bilateral acts did not indicate the disputed agreement. Thus, the court considered that such acts were not adequate evidence. With all this, the court simultaneously came to the following conclusion:
• having signed the agreement, the parties began to execute it, that is, they performed implied actions;
• since the terms of the contract indicate its focus on multiple performance, one-time transportation in the interests of the customer allows us to conclude that the parties have reached an agreement on all essential terms of a specific service (Resolution of the AS of the West Siberian District dated 04/07/2015 in case No. A75-723/ 2014).
Current legislation does not limit the parties in how they will document individual services under the framework agreement. If we are talking about the supply of goods, then evidence of delivery can be: fueling statements (resolutions of the AS of the West Siberian District dated 03/06/2018 in case No. A75-16170/2016, AS of the Far Eastern District dated 07/17/2018 in case No. A51-13151/2017) , invoices, waybills, specifications, issuing instructions to the forwarder (resolutions of the AS of the West Siberian District dated 12/05/2017 in case No. A27-2305/2017, dated 03/12/2018 in case No. A46-15768/2016).
It is worth noting that both the framework agreement itself and the documents clarifying it must be signed by authorized persons (decrees of the Moscow District Administrative Court dated September 4, 2017 in case No. A40-185901/2016, North Caucasus District Administrative Court dated March 12, 2018 in case No. A63 -173/2017).
An important aspect for recognizing the fact that the conditions under the framework agreement have been specified is also the fact that the parties to the transaction must approve it. Judicial practice most often proceeds from the fact that the approval of the transaction by the buyer can be evidenced by the actions of its employees in fulfilling the obligation, provided that they were based on a power of attorney or the authority of the employees to perform such actions was clear from the situation.
In addition, specific actions of the buyer may act as approval of the transaction if they indicate recognition of the transaction (for example, full or partial payment for goods, work, services, their acceptance for use, full or partial payment of interest on the principal debt (Resolution of the North Western District dated August 22, 2016 in case No. A56-64509/2015).
Disadvantages of the framework agreement design
• Not all activities are suitable for formalization through framework agreements.
• Fixing only general terms in a framework agreement may lead to contradictions in the interpretation of its terms. To avoid this circumstance, it is recommended:
– Before concluding a framework agreement, carry out a standard check of the parties’ authority to sign the framework agreement.
– Determine how to notify the supplier of the need for delivery.
– Define as specifically as possible the subject of the framework contract and the terms of delivery.
– Agree on the forms and list of data in the specifications and the procedure for signing them.
– Identify the persons authorized to execute the contract and indicate their contacts.
– Provide for the duration of the contract, the obligations of the parties, the claim procedure and liability for non-fulfillment or improper performance of the contract.
