Consortium Toolkit

8/12/2019 Consortium Toolkit

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Joint venturesand consortiumsToolkit


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Joint ventures and consortiums Toolkit

Contents

Introduction

The difference between a joint venture and a consortium

Why form a joint venture or consortium?

Whats right for you?

Joint ventures and consortiums - advantages and disadvantages

Practical steps what do I need to do?

Common pitfalls

Top 10 tips

Are you ready to establish a joint venture or consortium?

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Joint ventures and consortiumsToolkit

Tendering for public sectorcontracts can be perceived bysome to be beyond their reach,due to the size of contract, therange of products or servicesrequired, or the level ofexperience required.

Forming consortiums or jointventures is one way your business

can increase its capacity torespond to and deliver publicsector contracts.

Ajoint venture(JV) is an entityformed between two or more partiesto undertake economic activitytogether. Both parties agree to createa new entity by contributing equity,and then share in the revenues,expenses and control of theenterprise.

A consortiumis an association oftwo or more individuals, companiesor organisations with the objective ofparticipating in a common activity orpooling their resources to achieve acommon goal.

Introduction

The difference between a jointventure and a consortium

We have designed this toolkit toprovide practical support to helpyou decide if joint ventures orconsortiums are appropriate for yourbusiness and to make you aware ofthe steps involved.

Within the consortium, eachparticipant retains separate legalstatus and the consortiums controlover each participant is generallylimited to activities involving the jointendeavour, particularly the divisionof profits. A consortium is formed bycontract.


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The key reasons to form a joint venture or consortium may be that it willprovide your organisation with new opportunities to bid and secure contractswhich would not otherwise be available to you due to your size and scale.

Joint venture and consortium approaches will:

Why form a joint venture

or consortium?

1.Allow for the sharing ofresources, skills, experiences

and expertise - making yourtender submission moreinteresting to yourpotential clients.

2. Increase your capacity to deliveron larger tender or projectopportunities.

3.Give your business theopportunity to gain new

experiences within new markets.

4.Increase your geographicalspread and the scope ofyour delivery.

Before entering into either a jointventure or consortium agreement,all parties need to understand whatthey want from the relationship.

Both approaches have risks and

benefits: the most important thingis to take account of what yourobjective is in entering into the

Whats right for you?partnership and then to weigh upwhich avenue is more appropriate tohelp you manage and develop yourbusiness interests in conjunction withyour partner organisations.


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To help you to consider the best option for your business, the followingadvantages and disadvantages have been designed to help you make thebest decision for your business:

Joint ventures

the pros and cons

Joint ventureadvantages

Joint venturedisadvantages

Provides companies withthe opportunity to gain newcapacity and expertise.

Enables companies to enterrelated businesses or newgeographic markets or gainaccess to new technology.

Provides access to greaterresources - including specialised

staff and technology. Shares risks with a venture partner.

Enables flexibility: a joint venturecan have a limited life spanand only cover part of whatyou do, thus limiting both yourcommitment and the businessexposure.

Offers a creative way forcompanies to exit from non-core

business. Companies can gradually separate

business from the rest of theorganisation and eventually, sellit to another parent company.Roughly, 80% of all joint venturesend in a sale by one partnerto another.

It takes time and effort tobuild the right relationships andpartnering with another business canbe challenging. Problems are likely toarise if:

The objectives of the businessare not 100% clear andcommunicated to everyoneinvolved.

There is an imbalance in the levelof expertise, investment or assetsbrought into the venture by thedifferent parties.

Different culture and managementstyles result in poor integration andco-operation.

The partners do not provideenough leadership and support inthe early stages.

Creating a joint venture may result inmore complex tax arrangements.

Success in a joint venture dependson thorough research and analysis ofthe objectives.

Creating a joint venture can be morecostly than a consortium.


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Practical steps what do I need

to do? Joint venturesThe structure of the joint venture should set out the nature of yourpartnership. There are two main types of agreements:

1. If the joint venture is a business in its own right, it will be anincorporatedjoint venture.

2.A co-operative arrangement between two existing parties that keep theirseparate identities is called a contractualjoint venture.

The joint venture agreement should include:

Objectives:keep it simple and try tohave no more than five objectives.

Funding: both parties need to specifyhow much funding they will put intothe venture, and for how long.

Assets:

list any assets or employeesthat will be transferred throughout theduration of the joint venture.

Intellectual property:state whoowns any intellectual property createdduring the joint venture and how anyfinancial benefits will be distributed.

Roles:state who has responsibilityfor the processes involved during thejoint venture. If you are setting up a

new company, the composition ofthe Board e.g. Chief Executive andChief Financial Officer - should beidentified and voting rights agreed.

Agreement: incorporated jointventure agreements may also need toinclude a shareholders agreement,covering issues such as dividendpolicy and how the managementaccounts will be produced and

made available.

Third parties: any consents orapprovals needed from third partiesshould be explained in the agreement.

Finances:state how any profitsor losses will be divided betweenparties. Liabilities must also be

clearly listed.

Disputes:specify a mechanism bywhich any disputes can be resolved,such as arbitration by an agreedthird party.

Duration: specify how long the jointventure would last. If it is open-ended the agreement should statethe period of notice that each party

should give if they want to withdraw. Confidentiality: you may wish to

consider a confidentiality or non-disclosure agreement.

Principles:include a statement thatis not, in itself, legally binding onthe two parties. Instead it should beseen as a statement of principles enabling the parties to negotiate afinal, legally definitive agreement in

good faith.


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Practical steps what do I need

to do? ConsortiumsA consortium is more than a loose partnership of organisations working and

learning together (although they will do both). It is a formal arrangement

between companies working together to a defined objective. Clarity of purpose

is essential and therefore attention should be given to developing a

consortium agreement.

Points to consider when developing aconsortium written agreement:

Clarity: you will need to clearlydefine your project and give clearand concise detail on what theconsortium is being formed to do.

Duration:the commencement datesand the duration of the consortiummust be identified so that all parties

are clear regarding start andend dates.

Outputs:what are the outputs anddeliverables that the project partnersintend to create and what is theintended exploitation strategy forthose outputs and deliverables?

Roles: clearly identify the lead partnerand all of the roles and responsibilitiesof the other parties involved.

Structure:a clear managementstructure must be identified to includeproject management structures andsteering groups.

Finance: financial management ofthe project should be clearly detailedand fully described for each of theconsortium members. Details shouldalso be included in relation to the

allocation of project funding anddistribution of income.

Responsibilities:obligations andresponsibilities of each of theconsortium partners should beclearly identified and each membermust sign up to their role withinthe group.

Exit:A clear exit strategy for

consortium members should also bedetailed that will enable membersto see clearly how they may removethemselves, or their company, fromthe consortium.

Resources:project resources thatinclude allocation and distribution willbe required including information oninvoicing and claims.

Personnel: addition and removal of

parties to the consortium should beincluded, giving clear direction on theprocess that this will take.

Privacy:confidentiality andintellectual properties should alsobe described.


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Many joint venture and consortium approaches to tendering for publiccontracts are very successful. However, some of the failures can beattributed to the following:

Common pitfalls

Lack of clear understandingbetween parties as toroles, responsibilities, titles,commitments and requirementsetc.

No proper safeguards in placefor when things go wrong.

No legal advice sought atoutset in order to agree thenature of the partnership andits associated structures andmanagement arrangements.

Unwillingness to compromise onthe part of each or both of

the organisations.

Inability to manage culturaltensions and differentorganisational values.

Time delays caused by jointdecision making can mean thatbusinesses are slower to react tochanging circumstances.

Lack of appreciation of the costs

that can be involved in setting upthe new structure. This can alsoinvolve significant operationalresources.

There is a significant degreeof trust required on all parts. Ifthe new structure or one of theindividual elements of it fails, itreflects badly on all parties.


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Top 10 tips

1. Trust, openness andhonesty between membersare essential. Clearcommunication is required.

2. Choose members carefully.Look for shared values, notjust skills or geographicalreach. Make sure each

member is financially soundthrough credit checks etc.

3. Be clear on the purpose andobjective of the joint ventureor consortium. As a business,what do you expect to gainfrom the relationship?

4. Be realistic about the risks

and the cost involved.5. Take time to choose the

type of relationship: is a jointventure or consortium thebest vehicle for your purpose?

6. Use expert help, such as legaladvice, appropriately andconsider the appointment ofan independent advisor.

7. Clearly document what isagreed between membersincluding delivery roles andresponsibilities: who will dowhat, when and where?

8. Manage risks proactivelyand monitor performance.For example, to managereputational risk requiresopenness betweenmembers, controls onwho can join and robustperformance monitoring.

9. Do not neglect your ownorganisation or businessesin favour of working on theconsortium; you will needto make sure that you canspread your time acrosscompeting priorities.

10. Ensure owners or seniormanagement are committed

to the process.


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BCC5303

For further information please contact:

Belfast City Council, Cecil Ward Building,4-10 Linenhall Street, Belfast, BT2 8BP.

Tel: 028 9032 0202Email: [email protected]

[email protected]: www.belfastcity.gov.uk/economicdevelopment

www.facebook.com/belfastbusinessinfo

www.twitter.com/belfastcc

Taking account of the risks and benefits, advantages and disadvantages and

procedural requirements involved in establishing a joint venture, you need todecide whether either of these approaches is right for you and your business.

In making this decision, you need to:

Are you ready to establish ajoint venture or consortium?

Review your business strategy -is a joint venture or consortiumapproach the most appropriatemethod for you to achieve yourbusiness aims?

Look at what your competitorsare doing. Are they entering intojoint ventures or consortiums?If so, has this move beenbeneficial to their business?

Consider how much you knowabout your potential partner(s);are you a good fit? Are there

actual changes that need to beaddressed?

Consider the views of your staff.They may be concerned aboutthe impact on their job and onnew working conditions.

Are you and your partners clearabout what you each bring tothe agreement? Are you bothcontent with this and with whatis expected of you?

Importance of legal advice

Please note: legal advice should be sought prior to entering into a contractualarrangement. Contact the Law Society Northern Ireland on 028 9023 1614 orvisit www.lawsoc-ni.org for contact details of legal practices in your area.

Documents

Consortium Toolkit