Consortium agreement

Consortium agreement
See also


Consortium agreement this is a structure widely used in construction single-project joint ventures, and which provides the joint venturers with a more flexible way of catering for their particular needs than a partnership, but without having to create a new legal entity.

It differs from a partnership mainly in that there is no distribution of profits on a joint basis and the principle of agency does not apply. In addition, the parties' contributions are regulated by the agreement, to which contract law primarily applies.

Consortium agreements are quite common, particularly in a start up situation (new service offered to the market-place) or an initiative to develop business in a new geographical region. These are frequently loose arrangements and it is only when an individual opportunity is identified that the arrangement is formalized on a project-specific basis[1].

A consortium agreement is most frequently used to avoid having to set up the more formal arrangements necessary for a joint venture company or to avoid incurring joint and several liability under a partnership. The consortium contract usually provides the members with a direct interest in the assets and revenue of the venture. It is an arrangement commonly used by parties seeking to tender on a joint basis for a substantial contract or for a business enterprise which is of short duration or consists of a single undertaking or venture[2][3].

Components of consortium agreement

A consortium agreement should:

  1. Set out the scope and duration of the joint venture.
  2. Define the specific and detailed obligations of the individual members.
  3. Devise the machinery for financing the venture.
  4. Provide a mechanism for determining the sharing of profits or bearing of any losses which may result from the running of the enterprise.

The consortium agreement should also contain particular provisions to deal with any property to be used by the members and should determine, for example, which assets remain the exclusive property of the members and which assets are to be joint property.

Because the members are not partners, they do not owe any statutory duty to the other members and are not subject to any joint responsibility for the liabilities and obligations of the consortium, nor are they liable for the other members' acts or omissions[4].

Types of joint ventures

The main structures which joint ventures usually adopt are:

  • consortium agreement
  • limited liability company
  • societas europaea (European company)
  • partnership
  • limited liability partnership

Because one of the joint ventures can become liable for acts or omissions of a co-joint venturers it is usual for cross indemnities to be given to enable an innocent joint venturer to collect any amount that it has paid from the co-joint venturer[5]..

Footnotes

  1. A. Minogue, J. Baster 2010, p.263
  2. L. Edwards, R. Barnes 2000, p.96
  3. O. Luthar, L. Mulej 2010, p.56
  4. L. Edwards, R. Barnes 2000, p.97
  5. A. Minogue, J. Baster 2010, p.264

References

Author: Kinga Krzyściak