Consortium bidding in construction projects

Consortium bidding in construction projects

Francis Ho, head of construction at Olswang, explores consortium bidding, including the benefits of consortium bidding, when it is most commonly encountered and the issues to be aware of.

What is consortium bidding?

This is when a consortium jointly tenders for a project. A consortium comprises two or more partners who combine resources and strive towards a common goal. Each consortium member operates independently within the structure and key matters such as the scope of each member’s commitment, its rights and responsibilities, and how profits and costs are to be allocated, or decisions made are dealt with through a consortium agreement signed by the members.

Consortium members frequently set up a special purpose vehicle (SPV) to enter into the contract with the client but this is not always necessary—the consortium members could alternatively contract as a partnership with the project forming part of each member’s usual business. Where an SPV is used, often the members will generally wait until a point when they are likely to be awarded the contract before establishing and resourcing it up properly.

While using an SPV can often be associated with a joint venture rather than a consortium, strictly-speaking the difference between the two is that a consortium retains assets and decision-making across its members, whereas a joint venture will place both within the SPV and have each member contribute capital to and share profits from the joint venture. It’s not unusual to find people using the terms consortium and joint venture interchangeably, though, and their boundaries are often blurred.

What are the benefits of it?

The chief advantage of a consortium is that it can exploit and highlight the particular strengths, experiences and competences of its members. This can be highly attractive to a client, especially at tender evaluation stage. Even so, consortia are often created by their members through necessity rather than choice.

By way of example, a consortium established to pitch for a hospital private finance initiative (PFI) project might include the

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