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  • ICC MODEL CONSORTIUM AND JOINT - VENTURE AGREEMENTS:

    A COMPARISON5 October 2017 ICC Italia Workshop - THE NEW ICC CONTRACT MODELSFOR CONSORTIA, JOINT VENTURES AND TURNKEY PROJECTS ; WHY ANDHOW TO USE THEM AS AN ALTERNATIVE TO THE FIDIC AND THE OTHERCONTRACT MODELS

  • NEED FOR ICC MODEL AGREEMENT FOR CONSORTIUM AND JV

    Context : Strategic supply-base reduction has

    become a staple of procurement management

    Likewise, employers undertaking major projects

    have an understandable dislike of multi-contracting

    structures with several contracts directly entered

    into with several contractors

    The only substantial international model JV

    Agreement, by UNCTAD, dated back to 2004 and

    there was a need for additional detail and

    pedagogy

    1

  • REFERENCES FOR ICC MODEL AGREEMENT FOR CONSORTIUM AND JV

    Users can tap into the combined practical

    experiences of high level international players like

    (TECHNIP, ALSTOM, SIEMENS, BASIL READ, PARSONS,

    SADE)

    Good example of shared knowledge

    At ICC France, we had laudative feedback from

    EDF, AREVA and Orange who said they might use

    the agreements for their own needs

    2

  • ICC MODEL AGREEMENT METHODOLOGY

    Working group draws on experience of practitioners

    multisector and multijurisdiction pool of practitioners

    Balance

    Plain Offshore English i.e. an international

    language avoiding legal terminology

    Very detailed in order to avoid the need to refer to

    a domestic legal system

    Fool proof organisation in short special conditions

    and detailed general conditions

    Use of ready made ICC bricks: good faith, DRB and

    dispute resolution force majeure, anti-corruption,

    confidentiality,

    3

  • I - CONSORTIA/JV SIMILARITIES1.1. Single point of contact and joint responsibility

    Single point of contact on the contractors side whilst maintaining potential recourse against all the major suppliers to the project is what supply-base reduction is about

    At the contractors end, it makes better economic sense to adoptcollaborative strategies than to attempt to be a one stop shop like vertical trusts of the past. Cooperation, collaborative platforms and sharing are in the air.

    Risk and liability sharing, increased financial capacity, increased technical capacity (the best specialists of each work package) to satisfy the quality, cost and timely completion of the project..

    Single point of contact makes management of the whole project simpler for the owner who pushes it down to the joint operators

    4

  • I - CONSORTIA/JV SIMILARITIES1.2. Governance

    By definition the joint operators will have a diversityof culture in an international operation

    That cultural diversity cubes when diverse industries need to work together

    The working group has accordingly provided a detailed governance process aimed at givingprecedence to the interest of the project and providing proven dispute resolution tools and methods:

    Escalation

    Communication

    Coopration

    Dispute Board

    5

  • I - CONSORTIA/JV SIMILARITIES1.2. Governance (contd)

    Diversity of culture in statistics

    Joint operations in continental Europe are an

    integral part of the construction culture and are

    rather consensual (12,5% of construction disputes)

    In the UK, the rate climbs to 25%

    It is 44% in Asia

    And close to 50% in the Middle East

    https://www.arcadis.com/en/global/our-

    perspectives/construction-disputes-rise-in-value-

    over-60-percent-to51million/

    6

    https://www.arcadis.com/en/global/our-perspectives/construction-disputes-rise-in-value-over-60-percent-to51million/

  • I - CONSORTIA/JV SIMILARITIES1.3. Risk

    Unincorporated

    Cooperation as joint-operators brings about a risk sharing scheme that is fundamentally different from the one that forms the basis of the ICC Model Subcontract.

    For both joint-ventures and consortia, it can equally be said that the risk of non-payment by the Employer is shared amongst the joint operators. Unlike in subcontracts, payment on an if and when basis is the rule and not the exception.

    Similarly, joint venture operators, unlike subcontractors, typically assume counterparty risk of each other for the benefit of the Employer (joint and several liability).

    7

  • I - CONSORTIA/JV SIMILARITIES1.4. Strategic tool for market entry co-operations

    Independently from Employers objectives,

    businesses also actively seek co-operation with

    others and particularly with local operators, as one

    of the proven strategies of market entry. Co-

    operation with a local operator allows control of the

    initial investment as well as an invaluable

    acceleration of the learning curve of the new

    entrant.

    8

  • II - CONSORTIA/JV DIFFERENCES2.1. Sharing of performance risk

    Main difference : extent to which the joint-operators, for their own immediate benefit, share performance risks, i.e. the risks innate to the nature of their resources, technologies and processes.

    In a JV the members share all risks, liabilities, rights, benefits and profits in proportion to their participation in the joint venture, such proportion being in most cases determined based on the resources and other contributions that each member will supply to the joint venture for the execution of the total scope of work under the contract with their Employer, to whom they are jointly and severally liable for all the contractual obligations.

    In a consortium, each members bears the risk of itscontribution

    9

  • II - CONSORTIA/JV DIFFERENCES2.2. Consequences on governance

    A joint venture, even if it is not incorporated, is like a company : supervisory and executive bodies, joint bank account, joint management of resources, joint book keeping.

    The members of the governing bodies of the Joint Venture will, in most jurisdictions, have liabilities which are similar to those of officers of an incorporated company

    By contrast, in a consortium, the organisation is minimal. The leader has purely administrative duties.

    The joint operators in a consortium, though jointly and severally liable for the whole of the contractual obligations towards the Employer, are, towards the other Consortium Members, liable for the proper execution of their individual parts of the total scope of work only.

    10

  • II - CONSORTIA/JV DIFFERENCES2.3. Cautions

    Consortium can be preferable if the joint operators

    are not familiar with the intricacies of the other

    members business and risks therein and therefore

    have no means to control either the probability of

    the risk event materializing or the impact that the

    occurrence of the risk event may have.

    Antitrust cautions in the event of cooperation of

    competitors (coopetition)

    Compliance control of joint operator?

    11

  • II - CONSORTIA/JV DIFFERENCES2.3. Organisation of joint liability

    In the Consortium Agreement, the liability sharing rulesmust be agreed in detail

    By contrast, in the JV Agreement, because profit and loss are ultimately shared, there is no reason for a recourse clause.

    Even in the Consortium, incentive for cooperation arefound in the temperaments to the recourse clause: Limitations as a factor of the proportionate values of the

    contributions

    Exclusion of immaterial losses and punitive damages

    Short time limitation(30 of knowledge for notice and 6 months of provisional acceptance for action)

    Duty to mitigate losses

    12

  • III APPLICABLE LAW AND DISPUTE RESOLUTION3.1 Applicable law

    Choice of law should be neutral

    Various legal public orders which shall be

    applicable local codes and regulations such as HSE,

    permits, immigration, religious practices, days of rest

    and other recognized customs of the relevant

    country where the Joint Venture has a presence or

    interest in the course of the Project.

    Tax exposure due to competition of taxing

    authorities : seat(s), permanent establishments and

    such

    13

  • III APPLICABLE LAW AND DISPUTE RESOLUTION3.2 Dispute resolution

    Exclusive jurisdiction clause

    Flexible resolution clause with options to choose

    from the array of tools afforded by the ICC

    Mediation and DRB Rules

    Arbitration is, of course, ICC

    14

  • SMITH DORIA15, rue du Temple 75004 Paris France

    Tl: +33 (0)1 58 80 80 00

    Fax: +33 (0)1 44 61 42 87

    www.smithdoria.com

    Questions?

    15

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