Should I form a Joint Venture or a Consortium?

Although the words “joint venture” (incorporated or otherwise), and “consortium”, are sometimes used synonymously, in particular in infrastructure projects, and hydrocarbons exploration, they are not the same thing.

Broadly speaking, both the joint venture and the consortium concern the pooling of resources by hitherto un-associated parties, in order to carry out some piece of work, or tender for something.

But there are several difference between the joint venture and the consortium; for example, there is necessarily going to be a clear demarcation of scope of work between the parties to a consortium, whereas the joint venture contract need not divide up the scope among the parties to the venture.

That said, it is typical for the parties to a joint venture to state each party’s participating share precisely, for example 49% and 51%. But dividing up the scope of work among the parties to a consortium will not necessarily enable the parties to also divide up each party’s participating share in the consortium.  

Accordingly, it is common for the parties to a joint venture to have access to all the resources held by the venture; whereas, each of the parties to a consortium will typically have access to its own resources only.  

These divisions between the parties in a consortium will result in each party pricing its own scope of work separately from the scope owned and therefore priced by any other consortium party. This means that in a consortium each party will invoice separately for the scope for which it is responsible. In most joint ventures, invoices will be issued in the name of the joint venture itself, rather than in the separate names of the joint venture parties.

If the joint venture is an incorporated kind, then naturally it will comprise a legal entity in itself. This is not going to be the case with a consortium.

These, and the several other differences between the joint venture and the consortium will therefore be apparent in the difference between the contractual structures used to regulate each type of activity, the joint venture and the consortium.

It is essential, therefore, when drafting the appropriate contract governing the relevant activity, that the correct contractual form is used, and that there is no confusion between the two kinds of contractual form.

This post is intended for information only. It is not to be construed as legal advice. For legal advice in the context of a specific joint venture or consortium arrangement, please contact allbless@inarakconsultants.com

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