Pricing Strategies for Framework Agreements

Developing an effective pricing strategy for framework applications requires careful consideration of multiple factors to ensure both competitiveness and sustainability. It’s important to strike the right balance between winning a place on the framework and maintaining viable service delivery.

Understanding Framework Requirements

When developing your pricing strategy, it's essential to first understand that framework agreements typically require fixed pricing for at least the first year. Your initial pricing submission must be carefully calculated, as it will set the foundation for your service delivery throughout the framework period. Under the Procurement Act 2023, there are now both closed and open framework options. For open frameworks, the duration can be up to eight years, while closed frameworks maintain the four-year limit. This affects long-term pricing strategies and should be factored into initial calculations.

One benefit of these changes is that as a supplier, you now have multiple chances to join frameworks during their lifetime. Open frameworks can run for up to 8 years and must reopen at least twice – once within the first 3 years and again within the following 2 years. This means that if you initially missed out or were not ready to bid, you can join later, removing the previous barrier of being locked out for the framework’s entire duration. Similarly, if an open framework re-opens, you don’t have to apply to re-join, but you can if you want to amend either your offer or pricing approach.

Cost Analysis Fundamentals

Before setting your prices, conduct a thorough analysis of your true service delivery costs. This should include direct costs such as clinical staff time and materials, indirect costs like administration and management oversight, and framework-specific costs such as reporting requirements and contract management. Remember to factor in potential cost increases over the framework period, as your initial prices must remain sustainable.

Strategic Pricing Approaches

Consider implementing a tiered pricing structure based on volume thresholds. This approach allows you to offer more competitive rates for larger contracts while maintaining profitability on smaller ones. However, remember that frameworks typically don't guarantee volumes, so your pricing must work across different scales of service delivery.

The Procurement Act now allows for more flexible pricing arrangements, specifically permitting a ‘mechanism for determining the price payable’ rather than requiring fixed prices.  What this means is that frameworks may no longer require fixed prices to be set at the outset, instead allowing for a mechanism that determines how prices will be calculated.

The ability to use pricing mechanisms rather than fixed prices offers several advantages:

·      As a supplier, you can account for market fluctuations and cost variations over a framework’s duration

·      Pricing can be adjusted based on contract-specific requirements

·      There’s room for innovation in pricing structures that better reflect service delivery models

Buyers will be able to view your pricing when they decide to purchase via a framework.  Think about how buyers might choose which suppliers they will contact first. They will obviously look at costs. But that doesn’t mean that you should put in an abnormally low price. Better to apply your proposed pricing to a current contract for that service type. Could that service be delivered for that pricing structure? If it isn’t viable, then your pricing is too low. If it is hugely expensive then pricing is too high, so there is no way buyers are going

to approach you as their preferred supplier.  

Quality Differentiation

While price is important, frameworks typically evaluate both technical and commercial elements. This means excellent service quality can offset slightly higher pricing. Focus on demonstrating clear value through things like your multidisciplinary team expertise, comprehensive assessment processes, and strong clinical governance.

Framework-Specific Considerations

Your pricing strategy should account for framework-specific requirements such as gain share charges (typically 1.5% of turnover) and the need for clear evidence to support any future price variations. Consider these additional costs when calculating your rates to ensure long-term sustainability.  Under the new procurement act, which operates from February 2025, framework providers are no longer able to charge suppliers to gain access to a framework, or any other fees associated with the management of the framework. Fees can only be charged to suppliers that have been awarded a call-off contract and must be set as a fixed percentage of the estimated value of the call-off contract awarded to the supplier. The fees can only be charged if the details are set out in the framework and tender or transparency notice.  This makes it easier to calculate charges when calculating your initial pricing.

Call-Off Considerations

When applying for frameworks, ensure your pricing mechanism is clear, objective and sustainable for the framework's duration - which could be up to eight years. Your approach should work for both direct awards and mini-competitions, incorporating flexibility to manage cost fluctuations while maintaining competitiveness. Consider how your pricing will remain viable when frameworks reopen to new suppliers, as you'll need to either maintain your position or submit improved offers.

For direct awards, develop transparent pricing methods such as rate cards or pricing formulae that enable contracting authorities to calculate costs without further competition.

Risk Management

Build in appropriate contingencies for unexpected cost increases but avoid over-inflating prices. Consider factors such as staff retention costs, potential changes in regulatory requirements, and the need for ongoing training and development. Your pricing should reflect these risks while remaining competitive.

The key to successful framework pricing lies in developing a strategy that balances competitive positioning with sustainable service delivery while ensuring compliance with framework requirements and maintaining high service quality standards. All contracting authorities must demonstrate value for money under the new act. Your pricing strategy should clearly show how it supports this objective through:

·      Clear cost breakdowns

·      Evidence of efficiency measures

·      Demonstration of public benefit

All frameworks will be published on the new Central Digital Platform, along with details of appointed suppliers. This transparency allows you to better assess competition and make informed decisions about which frameworks to pursue. This is important because although the Procurement Act introduces more flexibility, frameworks still require a substantive competition process for initial appointment which is time-consuming. However, changes brought in via the Act create a more dynamic marketplace that particularly benefits SMEs and new market entrants by providing multiple opportunities to join frameworks throughout their duration.

Considering a framework bid and want help in submitting your application or determining pricing?  Or someone to organise and manage the bid process?  Ocean City Bids is a professional bid consultancy working with a range of clients across the UK. Contact us on bid@oceancitybids.co.uk or visit our website www.oceancitybids.co.uk. Find us on LinkedIn: https://www.linkedin.com/company/94145556