Which of the following arrangement would benefit both the contractor and customer?

A construction company often subcontracts approximately 50% of the project works because of unpredictable customer’s demand. Although larger corporate customers require quick response to RFQ, the time lapse between tender bid submission and contract commencement is usually long.

Which of the following arrangement would benefit both the contractor and customer?
A . Collateral contract
B. Bilateral contract
C. Indemnity agreement
D. Framework agreement

View Answer

Answer: D

Explanation:

According to the scenario, customers’ demand changes regularly but the construction project commencement often delays. If the contractor and the customer mutually sign a legally binding contract too soon long before the commencement, the contractor may suffer poor cash flow (it must buy the materials first but has to wait for long time to be paid). A framework agreement may help both parties.

A framework agreement is a formal agreement between two organisations that is intended

to become legally binding in the event that a contract is created.

A framework agreement could benefit the both parties in the following ways:

– At the time of signing, the framework agreement has not yet become a legally binding contract. The contractor and client only agree on the principles of future contracts (such as whether the work can be subcontracted or how payment will be proceeded). A well structured framework agreement will allow both parties to apply changes before contract commencement, especially regarding price and quality.

– The framework agreement assures a certainty between the contractor and client.

– The administrative works is reduced under a framework agreement.

Reference:

– CIPS study guide page 60-62

– Framework Agreements: Practice and Pitfalls LO 1, AC 1.3