Joint ventures

and consortiums
Toolkit
www.belfastcity.gov.uk/consortiums

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

10

Top 10 tips

11

Are you ready to establish a joint venture or consortium?

12

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Joint ventures and consortiums

Toolkit

Practical steps what do I need

to do? Consortiums
A 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 a

consortium written agreement:
Clarity: you will need to clearly
define your project and give clear
and concise detail on what the
consortium is being formed to do.
Duration: the commencement dates
and the duration of the consortium
must be identified so that all parties
are clear regarding start and
end dates.
Outputs: what are the outputs and
deliverables that the project partners
intend to create and what is the
intended exploitation strategy for
those outputs and deliverables?
Roles: clearly identify the lead partner
and all of the roles and responsibilities
of the other parties involved.
Structure: a clear management
structure must be identified to include
project management structures and
steering groups.
Finance: financial management of
the project should be clearly detailed
and fully described for each of the
consortium members. Details should
also be included in relation to the
allocation of project funding and
distribution of income.

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Responsibilities: obligations and

responsibilities of each of the
consortium partners should be
clearly identified and each member
must sign up to their role within
the group.
Exit: A clear exit strategy for
consortium members should also be
detailed that will enable members
to see clearly how they may remove
themselves, or their company, from
the consortium.
Resources: project resources that
include allocation and distribution will
be required including information on
invoicing and claims.
Personnel: addition and removal of
parties to the consortium should be
included, giving clear direction on the
process that this will take.
Privacy: confidentiality and
intellectual properties should also
be described.

Toolkit

Joint ventures and consortiums

Introduction
Tendering for public sector
contracts can be perceived by
some to be beyond their reach,
due to the size of contract, the
range of products or services
required, or the level of
experience required.

We have designed this toolkit to

provide practical support to help
you decide if joint ventures or
consortiums are appropriate for your
business and to make you aware of
the steps involved.

Forming consortiums or joint

ventures is one way your business
can increase its capacity to
respond to and deliver public
sector contracts.

The difference between a joint

venture and a consortium
A joint venture (JV) is an entity
formed between two or more parties
to undertake economic activity
together. Both parties agree to create
a new entity by contributing equity,
and then share in the revenues,
expenses and control of the
enterprise.

Within the consortium, each

participant retains separate legal
status and the consortiums control
over each participant is generally
limited to activities involving the joint
endeavour, particularly the division
of profits. A consortium is formed by
contract.

A consortium is an association of
two or more individuals, companies
or organisations with the objective of
participating in a common activity or
pooling their resources to achieve a
common goal.

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Joint ventures and consortiums

Toolkit

Why form a joint venture

or consortium?
The key reasons to form a joint venture or consortium may be that it will
provide your organisation with new opportunities to bid and secure contracts
which would not otherwise be available to you due to your size and scale.
Joint venture and consortium approaches will:
1. Allow for the sharing of
resources, skills, experiences
and expertise - making your
tender submission more
interesting to your
potential clients.
2. Increase your capacity to deliver
on larger tender or project
opportunities.

3. Give your business the

opportunity to gain new
experiences within new markets.
4. Increase your geographical
spread and the scope of
your delivery.

Whats right for you?

Before entering into either a joint
venture or consortium agreement,
all parties need to understand what
they want from the relationship.
Both approaches have risks and
benefits: the most important thing
is to take account of what your
objective is in entering into the

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partnership and then to weigh up

which avenue is more appropriate to
help you manage and develop your
business interests in conjunction with
your partner organisations.

Toolkit

Joint ventures and consortiums

Joint ventures
the pros and cons
To help you to consider the best option for your business, the following
advantages and disadvantages have been designed to help you make the
best decision for your business:

Joint venture
advantages
Provides companies with
the opportunity to gain new
capacity and expertise.
Enables companies to enter
related businesses or new
geographic markets or gain
access to new technology.
Provides access to greater
resources - including specialised
staff and technology.
Shares risks with a venture partner.
Enables flexibility: a joint venture
can have a limited life span
and only cover part of what
you do, thus limiting both your
commitment and the business
exposure.
Offers a creative way for
companies to exit from non-core
business.
Companies can gradually separate
business from the rest of the
organisation and eventually, sell
it to another parent company.
Roughly, 80% of all joint ventures
end in a sale by one partner
to another.

Joint venture
disadvantages
It takes time and effort to
build the right relationships and
partnering with another business can
be challenging. Problems are likely to
arise if:
The objectives of the business
are not 100% clear and
communicated to everyone
involved.
There is an imbalance in the level
of expertise, investment or assets
brought into the venture by the
different parties.
Different culture and management
styles result in poor integration and
co-operation.
The partners do not provide
enough leadership and support in
the early stages.
Creating a joint venture may result in
more complex tax arrangements.
Success in a joint venture depends
on thorough research and analysis of
the objectives.
Creating a joint venture can be more
costly than a consortium.

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Joint ventures and consortiums

Toolkit

Consortiums
the pros and cons
To help you to consider the best option for your business, the following
advantages and disadvantages have been designed to help you make the
best decision for your business:

Consortium
advantages
Easy to establish as there
are no formal procedures
that must be followed. Most
consortiums are formed in writing
by the execution of a consortium
agreement. In addition, no
capital is required to create the
consortium.
Members of the consortium
can change their contractual
agreement at any time to suit
changed circumstances.
The consortium can be set to
expire on a given date or on the
occurrence of certain events
without any formal requirements.
The consortium is not directly
subject to taxation; however the
individual members are.
Some of the members of a
consortium may choose to be
undisclosed in dealings with
third parties.
The cost of running a consortium
is generally lower to that of a joint
venture.

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Consortium
disadvantages
It is difficult for
consortium members to restrict
or limit its liability. Members may
even become liable to third parties
for the non-performance of other
members of the consortium or
the debts of such members in
undertaking a common project.
Third parties will often find it
difficult to enter into contract
with a non-legal entity like a
consortium. Because it is a nonlegal entity funding is also difficult.

Toolkit

Joint ventures and consortiums

Practical steps what do I need

to do? Joint ventures
The structure of the joint venture should set out the nature of your
partnership. There are two main types of agreements:
1. If the joint venture is a business in its own right, it will be an
incorporated joint venture.
2. A co-operative arrangement between two existing parties that keep their
separate identities is called a contractual joint venture.

The joint venture agreement should include:

Objectives: keep it simple and try to
have no more than five objectives.
Funding: both parties need to specify
how much funding they will put into
the venture, and for how long.
Assets: list any assets or employees
that will be transferred throughout the
duration of the joint venture.
Intellectual property: state who
owns any intellectual property created
during the joint venture and how any
financial benefits will be distributed.
Roles: state who has responsibility
for the processes involved during the
joint venture. If you are setting up a
new company, the composition of
the Board e.g. Chief Executive and
Chief Financial Officer - should be
identified and voting rights agreed.
Agreement: incorporated joint
venture agreements may also need to
include a shareholders agreement,
covering issues such as dividend
policy and how the management
accounts will be produced and
made available.

Third parties: any consents or

approvals needed from third parties
should be explained in the agreement.
Finances: state how any profits
or losses will be divided between
parties. Liabilities must also be
clearly listed.
Disputes: specify a mechanism by
which any disputes can be resolved,
such as arbitration by an agreed
third party.
Duration: specify how long the joint
venture would last. If it is openended the agreement should state
the period of notice that each party
should give if they want to withdraw.
Confidentiality: you may wish to
consider a confidentiality or nondisclosure agreement.
Principles: include a statement that
is not, in itself, legally binding on
the two parties. Instead it should be
seen as a statement of principles
enabling the parties to negotiate a
final, legally definitive agreement in
good faith.

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Toolkit

Joint ventures and consortiums

Common pitfalls
Many joint venture and consortium approaches to tendering for public
contracts are very successful. However, some of the failures can be
attributed to the following:
Lack of clear understanding
between parties as to
roles, responsibilities, titles,
commitments and requirements
etc.
No proper safeguards in place
for when things go wrong.
No legal advice sought at
outset in order to agree the
nature of the partnership and
its associated structures and
management arrangements.
Unwillingness to compromise on
the part of each or both of
the organisations.

Time delays caused by joint

decision making can mean that
businesses are slower to react to
changing circumstances.
Lack of appreciation of the costs
that can be involved in setting up
the new structure. This can also
involve significant operational
resources.
There is a significant degree
of trust required on all parts. If
the new structure or one of the
individual elements of it fails, it
reflects badly on all parties.

Inability to manage cultural

tensions and different
organisational values.

10

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Joint ventures and consortiums

Toolkit

Top 10 tips
1. Trust, openness and
honesty between members
are essential. Clear
communication is required.
2. Choose members carefully.
Look for shared values, not
just skills or geographical
reach. Make sure each
member is financially sound
through credit checks etc.
3. Be clear on the purpose and
objective of the joint venture
or consortium. As a business,
what do you expect to gain
from the relationship?
4. Be realistic about the risks
and the cost involved.
5. Take time to choose the
type of relationship: is a joint
venture or consortium the
best vehicle for your purpose?

8. Manage risks proactively

and monitor performance.
For example, to manage
reputational risk requires
openness between
members, controls on
who can join and robust
performance monitoring.
9. Do not neglect your own
organisation or businesses
in favour of working on the
consortium; you will need
to make sure that you can
spread your time across
competing priorities.
10. Ensure owners or senior
management are committed
to the process.

6. Use expert help, such as legal

advice, appropriately and
consider the appointment of
an independent advisor.
7. Clearly document what is
agreed between members
including delivery roles and
responsibilities: who will do
what, when and where?

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11

Taking account of the risks and benefits, advantages and disadvantages and
procedural requirements involved in establishing a joint venture, you need to
decide whether either of these approaches is right for you and your business.
In making this decision, you need to:
Review your business strategy is a joint venture or consortium
approach the most appropriate
method for you to achieve your
business aims?
Look at what your competitors
are doing. Are they entering into
joint ventures or consortiums?
If so, has this move been
beneficial to their business?

Consider the views of your staff.

They may be concerned about
the impact on their job and on
new working conditions.
Are you and your partners clear
about what you each bring to
the agreement? Are you both
content with this and with what
is expected of you?

Consider how much you know

about your potential partner(s);
are you a good fit? Are there
actual changes that need to be
addressed?
Importance of legal advice
Please note: legal advice should be sought prior to entering into a contractual
arrangement. Contact the Law Society Northern Ireland on 028 9023 1614 or
visit www.lawsoc-ni.org for contact details of legal practices in your area.
For further information please contact:
Belfast City Council, Cecil Ward Building,
4-10 Linenhall Street, Belfast, BT2 8BP.
Tel: 028 9032 0202
Email: economicdevelopment@belfastcity.gov.uk
tenders@belfastcity.gov.uk
Web: www.belfastcity.gov.uk/economicdevelopment
www.facebook.com/belfastbusinessinfo
www.twitter.com/belfastcc

www.belfastcity.gov.uk/consortiums

BCC 5303

Are you ready to establish a

joint venture or consortium?