Sub-contracting, joint ventures or consortiums for tenders

What is the difference between Sub-Contracting, Joint Ventures, and Consortiums?

Every tender is unique and will have its own specific requirements and evaluation criteria. Some tenders specifically require bidders to subcontract part of the services or that only consortia may respond. In other cases, and especially with complex and large projects, a bidder may, on their own accord, need to join forces with other companies in order to present a compliant bid that can deliver all the services required. The complexity of the project, capabilities and footprint of the bidder will in most cases determine the need for either sub-contacting part of the services or partnering with other companies in the form of Joint Ventures or Consortia.

Some of the pros and cons of JV’s and Consortiums are, but are not limited to, the following:-

Sub-contracting takes place when the Bidder appoints other companies to deliver part of the services required by the bid as a contractor. The Bidder remains accountable to the tender authority and carries all the risk so it is important to ensure that sub-contracting agreements with sufficient control measures are in place. The benefit of sub-contacting is that subcontractors can be replaced more easily in the event of poor performance than with JV’s and Consortium.
Joint ventures generally comprise up to three partners who join forces to share their expertise for a particular contract. A Joint Venture agreement is drawn up between the parties to form a separate entity with its own set of rules by which it is governed by its own governing body that is made up of members of the various entities in the Joint Venture. Among other things, Joint ventures can be advantageous in that your risk exposure is minimized, expenses and profits are shared, and it is an opportunity for businesses to grow and may even lead to the establishment and/or selling off of a new company. On the other hand, some disadvantages could arise when joining a mix of management styles and cultures. A clear understanding of the objectives and cooperation between the parties can sometimes arise, therefore it is imperative to take the time to build solid relationships with other businesses.
Consortiums are also formed by two or more companies or organizations to share their resources for a particular contract. The consortium’s control over each participant is limited to their share of activities in the project. Division of profits is also based on participation. A Consortium agreement is entered into by all parties.

JOINT VENTURE	CONSORTIUM
PROS
Opportunity for growth on an expertise level or new business.	No formal procedures to be followed so it is relatively easy to establish by way of a consortium agreement.
Access to more resources.	No capital is required.
Shared risks with a partner/s	Members can change their contractual agreement at any time if circumstances change and they need to be aligned.
Can have a limited lifespan.	Individuals are subject to taxation and not the consortium.
Can cover only the part of what you do which will limit your commitment and exposure.	The cost of running a consortium is usually lower than that of a joint venture.
CONS
More costly to set up than a consortium.	Difficult to restrict or limit the liability of the members.
Partnering with another business can be challenging when joining different business cultures, expertise and assets.	Members could become liable for the non-performance or debts of other members of the consortium.
Creating a joint venture may result in more complex tax arrangements.	A Consortium is a non-legal entity & therefore funding is a challenge or entering into contracts with third parties.

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Published on 2022/05/12 at 11:30 am

What is the difference between Sub-Contracting, Joint Ventures and Consortium’s?

What is the difference between Sub-Contracting, Joint Ventures, and Consortiums?