Joint ventures

and consortiums
Toolkit

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

Contents
Introduction 4
The difference between a joint venture and a consortium 4
Why form a joint venture or consortium? 5
What’s right for you? 5
Joint ventures and consortiums - advantages and disadvantages 6
Practical steps – what do I need to do? 8
Common pitfalls 10
Top 10 tips 11
Are you ready to establish a joint venture or consortium? 12

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 Toolkit Joint ventures and consortiums

Introduction
Tendering for public sector We have designed this toolkit to
contracts can be perceived by provide practical support to help
some to be beyond their reach, you decide if joint ventures or
due to the size of contract, the consortiums are appropriate for your
range of products or services business and to make you aware of
required, or the level of the steps involved.
experience required.
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 Within the consortium, each
formed between two or more parties participant retains separate legal
to undertake economic activity status and the consortium’s control
together. Both parties agree to create over each participant is generally
a new entity by contributing equity, limited to activities involving the joint
and then share in the revenues, endeavour, particularly the division
expenses and control of the of profits. A consortium is formed by
enterprise. 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 3. Give your business the
resources, skills, experiences opportunity to gain new
and expertise - making your experiences within new markets.
tender submission more
4. Increase your geographical
interesting to your
spread and the scope of
potential clients.
your delivery.
2. Increase your capacity to deliver
on larger tender or project
opportunities.

What’s right for you?

Before entering into either a joint partnership and then to weigh up
venture or consortium agreement, which avenue is more appropriate to
all parties need to understand what help you manage and develop your
they want from the relationship. business interests in conjunction with
your partner organisations.
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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 Toolkit
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.
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Joint ventures and consortiums
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.
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 Consortium
advantages disadvantages
• Easy to establish as there • It is difficult for
are no formal procedures consortium members to restrict
that must be followed. Most or limit its liability. Members may
consortiums are formed in writing even become liable to third parties
by the execution of a consortium for the non-performance of other
agreement. In addition, no members of the consortium or
capital is required to create the the debts of such members in
consortium. undertaking a common project.
• Members of the consortium • Third parties will often find it
can change their contractual difficult to enter into contract
agreement at any time to suit with a non-legal entity like a
changed circumstances. consortium. Because it is a non-
• The consortium can be set to legal entity funding is also difficult.
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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 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 open-
ended 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 non-
disclosure 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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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 • Responsibilities: obligations and
define your project and give clear responsibilities of each of the
and concise detail on what the consortium partners should be
consortium is being formed to do. clearly identified and each member
must sign up to their role within
• Duration: the commencement dates
the group.
and the duration of the consortium
must be identified so that all parties • Exit: A clear exit strategy for
are clear regarding start and consortium members should also be
end dates. detailed that will enable members
to see clearly how they may remove
• Outputs: what are the outputs and
themselves, or their company, from
deliverables that the project partners
the consortium.
intend to create and what is the
intended exploitation strategy for • Resources: project resources that
those outputs and deliverables? include allocation and distribution will
be required including information on
• Roles: clearly identify the lead partner
invoicing and claims.
and all of the roles and responsibilities
of the other parties involved. • Personnel: addition and removal of
parties to the consortium should be
• Structure: a clear management
included, giving clear direction on the
structure must be identified to include
process that this will take.
project management structures and
steering groups. • Privacy: confidentiality and
intellectual properties should also
• Finance: financial management of
be described.
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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 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 • Time delays caused by joint
between parties as to decision making can mean that
roles, responsibilities, titles, businesses are slower to react to
commitments and requirements changing circumstances.
etc.
• Lack of appreciation of the costs
• No proper safeguards in place that can be involved in setting up
for when things go wrong. the new structure. This can also
involve significant operational
• No legal advice sought at
resources.
outset in order to agree the
nature of the partnership and • There is a significant degree
its associated structures and of trust required on all parts. If
management arrangements. the new structure or one of the
individual elements of it fails, it
• Unwillingness to compromise on
reflects badly on all parties.
the part of each or both of
the organisations.
• Inability to manage cultural
tensions and different
organisational values.

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Joint ventures and consortiums Toolkit

Top 10 tips
1. Trust, openness and 8. Manage risks proactively
honesty between members and monitor performance.
are essential. Clear For example, to manage
communication is required. reputational risk requires
openness between
2. Choose members carefully.
members, controls on
Look for shared values, not
who can join and robust
just skills or geographical
performance monitoring.
reach. Make sure each
member is financially sound 9. Do not neglect your own
through credit checks etc. organisation or businesses
in favour of working on the
3. Be clear on the purpose and
consortium; you will need
objective of the joint venture
to make sure that you can
or consortium. As a business,
spread your time across
what do you expect to gain
competing priorities.
from the relationship?
10. Ensure owners or senior
4. Be realistic about the risks
management are committed
and the cost involved.
to the process.
5. Take time to choose the
type of relationship: is a joint
venture or consortium the
best vehicle for your purpose?
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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 BCC 5303
Are you ready to establish a
joint venture or consortium?
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 - • Consider the views of your staff.
is a joint venture or consortium They may be concerned about
approach the most appropriate the impact on their job and on
method for you to achieve your new working conditions.
business aims?
• Are you and your partners clear
• Look at what your competitors about what you each bring to
are doing. Are they entering into the agreement? Are you both
joint ventures or consortiums? content with this and with what
If so, has this move been is expected of you?
beneficial to their business?
• 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