icc model consortium and joint - venture agreements: a model consortium and joint - venture...

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

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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

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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,

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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

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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

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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/

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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).

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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.

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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

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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.

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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?

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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

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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

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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

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Questions?

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