Certain Legal Problems and Risks in Frame Agreements

Abstract

Perhaps the most important and frequent agreement in trade is a purchase/sales agreement of tangible goods. A frame purchase/sales agreement, in turn, is an agreement between two or more companies that sets the common legal and commercial terms to be applied in a continuous contractual relationship. Such an agreement is a common contractual tool for many sourcing and purchase departments in today’s business world. The fundamental issue is that the frame agreement is aimed at exhaustively setting the terms and conditions to be applied between the seller (often referred to as the supplier) on one hand and the buyer (often referred to as the customer) on the other. One main advantage of a frame agreement is that it provides a contractual umbrella under which the parties can operate without the need to re-agree on the terms in connection with each individual transaction. However, since a frame agreement often is aimed at regulating an environment in which multiple sub-transactions take place, often between multiple parties, over a long period time, such circumstances can create controversies or even disputes if the parties do not pay attention to certain matters and consistently monitor the performance and execution of their contractual relationship.

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