A recent discussion highlighted the importance of understanding the difference between a master and a framework agreement. They seem to overlap to a certain extent, but there are certain distinctions that make it possible to differentiate between them.
A framework agreement is an instrument used in situations when the parties regularly enter into various smaller or larger transaction. A framework agreement provides the parties a simple way of placing an order without having to enter into an individual contract each time a minor transaction is initiated. In such case, the parties can simply issue a purchase order, which is governed by the framework contract.
A master agreement works slightly differently. Is used in several fields as basic document regulating the relationship of the participants in a certain subject. Like a framework agreement, it is also a top-level document regulating several lower level transactions. While a framework agreement simplifies a series of transactions by eliminating the need to contract each time by the use of PO forms, the master agreement is designed to provide a platform for any further transaction in the subject matter.
A master agreement can be seen as the main document under which any further relationship may be created, provided, however, that their terms must be in fully compliance with those of the master agreement. The purpose is not simply to provide for a simplified process but mostly to determine the most important provisions that will apply in any further transaction governed by the master agreement.
