Forming a consortium for the delivery of public services

2. Forming a consortium Why form a consortium? Who should be part of the consortium? What form should the consortium take? When do you need to put it in place?

3. Why form a consortium? Opportunity to tender for contract with various requirements geographic coverage range of skill sets availability of resource size or scale of activity involved Share risk / reward � but, some public bodies are not used to dealing with consortia

4. Who should be part of the consortium? Thoroughly examine tender requirements Assess: Services which your organisation can provide Additional skills/ resource needed Determine which organisations could provide necessary skills / resource

5. Initial considerations/strategic questions Impact on stakeholders Degree of alignment between the organisation�s mission/purpose and the mission/purpose of the consortium What skills/experience is the organisation lacking? What decisions will be made by the consortium as opposed to being made by the individual partners? How does that impact on the organisation�s ability to manage risk? Developing a consortium

6. Developing a consortium Initial considerations/strategic questions (contd.) Duration of the consortium contract Effect on existing operations Will it open up other potential opportunities? Financial systems Responsibility for financial systems Allocation and management of responsibilities/liabilities

7. Developing a consortium Initial considerations/strategic questions (contd.) Risks Implications of performance failure Exit strategy Competitors - what unique selling point does your consortium have that will help you to win the contract? What unique selling point(s) does your competition have?

8. Developing a consortium Understand the difference between a grant and a contract for services Legal structures - implications

9. What form should the consortium take? Contractual frameworks for service delivery Frameworks involving a corporate body Process for developing the legal framework

10. Contractual frameworks for service delivery Simplest model for forming a consortium No new corporate structure Detailed set of contractual terms and conditions among the members

11. Contractual frameworks for service delivery The consortium agreement will outline: The duration of the relationship The rights and duties of each of the parties The scope of the project Financing of the project Agreed restrictions among the parties Profit participation Asset sharing Exit provisions

12. Contractual frameworks for service delivery If two parties to the consortium, may be viable to have both as parties to the services contract Where two or more service providers are parties to the same services contract, likely that the authority will impose joint & several liability More likely that authority will insist on one lead partner � single point of contact/interface

13. Lead partner of consortium Where lead partner is sole party to services contract: lead partner will carry full liability to the authority for all obligations under the contract lead partner will receive and distribute all payments from the authority under the contract lead partner will have sole right to enforce obligations of the authority under the contract lead partner will have control over exercising options under the contract, and control of all negotiations with the authority

14. Contractual frameworks for service delivery (cont) Back-to-back agreements between the lead partner and other parties to the consortium should cover the following: Other parties to bear a proportion of liability where problem caused jointly by all members of the consortium; or full amount if that party caused the problem Agreed split of responsibility as regards services to be delivered by each party Agreed split of payments received from the authority Mechanisms to ensure (where appropriate) that lead partner gives effect to joint decisions on eg negotiations with the authority Risk exposure of lead partner may distort the dynamic of joint decision-making

15. Lead partner with joint steering group Variant of previous model Same features plus joint steering group to act as a forum for joint decision making on matters of detailed delivery and to maintain the focus on the agreed objectives Steering group would consist of representatives of the organisations forming the consortium Lead partner would be contractually obliged to refer certain matters to steering group for discussion Difficulties in compelling lead partner to comply with decision of steering group

16. Frameworks involving a corporate body Jointly-controlled corporate body takes the role of party to the contract with the authority Nature of corporate body depends on: aspirations of the parties as regards financial returns (profit-distributing or not) nature of activities to be carried on by the corporate body (charitable status or not) potential sources of funding (eligibility for support) Contractual framework also requires to be put in place � including clear rights/obligations of the parties as subcontractors/service providers to the joint corporate body

17. Frameworks involving a corporate body (cont) Key issues in developing the structure of the corporate body include: Split of profits Voting power at member/shareholder level Representation at board level Conflict of interest rules Introduction of a new partner Exit Deadlock/default

18. Frameworks involving a corporate body (cont)

19. Frameworks involving a corporate body (cont) MODEL 2

20. Frameworks involving a corporate body (cont) Advantages / disadvantages of using a corporate body as consortium vehicle: Limited liability � possibility that local authority will seek guarantees directly from members Separate legal entity � can sue and be sued in its own name Better for joint decision making / pooling of assets Duties of directors to promote the success of consortium vehicle Formal registration procedures Additional set-up and running costs Additional formality Separate accounting requirements

21. Process for developing the legal framework Develop key principles, and main components within the overall structure Identify key risks; and mechanisms for controlling risk Most issues will be common to all parties in the consortium � open dialogue/debate is usually best Once proposals are reasonably well-developed, take a step back: explore �what-if� scenarios, including possibility of another party exploiting position to its advantage test proposals against your organisation�s best interests When does it need to be put in place?

22. Questions

23. Contact Us Graeme Palmer Associate 0141 273 6738 graeme.palmer@burness.co.uk