In business activities, contracts serve as an essential instrument for defining the rights and obligations of the parties. A framework agreement, in particular, is commonly executed to establish an overarching legal foundation for long-term or recurring transactions while mitigating potential legal risks.

I. The role of framework agreements

A framework agreement functions as an important legal tool in various transactions, especially commercial transactions, not only by defining the guiding principles for cooperation but also by facilitating the conclusion of subsequent specific contracts.

In most cases, the parties focus on general provisions governing rights and obligations, conditions, and regulatory requirements. These provisions operate as a legal structure for their cooperation, thereby reducing potential risks and disputes and contributing to a stable, sustainable, and efficient business relationship.

II. Legal provisions governing framework agreements

1. Definition of a framework agreement

Current legislation does not provide a statutory definition of a framework agreement. However, in practice, a framework agreement is understood as an arrangement between the parties to establish general provisions concerning the formation, modification, or termination of rights and obligations during the performance of specific transactions.

Such a type of agreement is directive in nature; it does not stipulate detailed terms of any single transaction but only provides principles applicable to subsequent transactions.

2. Situations in which a framework agreement should be executed

A framework agreement is typically executed in the following circumstances:

  • When the parties wish to establish a legal structure for a long-term cooperative relationship;
  • When the parties lack sufficient conditions or information to enter into a definitive contract;
  • When the parties seek to create a basis for negotiating and executing further specific contracts.

In summary, a framework agreement is generally executed when the parties are not yet able to conclude a formal contract but still wish to clearly define fundamental principles, commitments, and responsibilities to serve as a basis for future contracts.

3. Contents of a framework agreement

There is currently no mandatory statutory rule prescribing the content of a framework agreement. The specific contents depend on the nature of the relationship and the parties’ agreement; however, a framework agreement should generally include the following key elements:

  • The parties’ information;
  • The scope of work or cooperation;
  • Contract value and payment terms (if applicable);
  • Term and validity of the agreement;
  • Rights and obligations of the parties;
  • Conditions for entering into definitive contracts;
  • Liability for breach and dispute resolution mechanisms.

The content of a framework agreement must be sufficiently clear so that the parties can understand and properly perform their commitments, thereby creating the foundation for subsequent definitive contracts. 

III. Questions regarding framework agreements

1. Similarities between a framework agreement and an economic contract

The primary similarity between a framework agreement and an economic contract is that both constitute an agreement between parties concerning rights and obligations, based on the principles of voluntariness and equality, and both impose binding obligations on the parties. These agreements are commonly executed in writing and bear the signatures of the parties. 

2. Duration of a framework agreement

The law does not prescribe a specific duration for a framework agreement; its term is determined by the parties’ agreement. Typically, a framework agreement has a longer duration than ordinary commercial contracts to allow for the implementation of multiple transactions throughout its term.

3. Circumstances in which a framework agreement has no legal effect

Pursuant to Articles 407 and 408 of the Civil Code 2015, an agreement is void under the following circumstances:

  • Void due to violation of statutory prohibitions or contravention of social morality;
  • Void due to sham transaction;
  • Void if the contracting party is a minor, a person lacking legal capacity, a person with cognitive or behavioral difficulties, or a person with limited legal capacity;
  • Void due to mistake;
  • Void due to deception, threat, or coercion;
  • Void where the contracting party is unable to understand and control his/her conduct;
  • Void due to non-compliance with form requirements;
  • Void where the subject matter cannot be performed.

Accordingly, a framework agreement shall be void and have no legal effect if it falls within any of the above circumstances.

IV. Legal consultancy services on framework agreements

The above article presents NPLaw’s overview of the current legal regulations governing framework agreements. With a team of experienced lawyers and legal professionals, NPLaw offers reputable and professional legal services, ensuring the best protection of our Clients’ lawful rights and interests. Should you require legal assistance, please contact NPLaw for further guidance and support.