Eidic
GUIDE TO THE USE OF FIDIC’S
SUB-CONSULTANCY AND
JOINT VENTURE
CONSORTIUM) AGREEMENTS
& xition 1994GUIDE TO THE USE OF FIDIC’S
SUB-CONSULTANCY AND
JOINT VENTURE
(CONSORTIUM) AGREEMENTS
® Edition 1994ACKNOWLEDGEMENTS
FIDIC wishes to acknowledge the time and effort of those who contributed to the
development of the Sub-Consultancy Agreement, the Joint Venture (Consortiuin)
Agreement, and this Guide.
‘The Agreements are based on original drafts supplied to FIDIC’s Client Consultant
Relationships Committee (CCRC) by Mr. David J, Lowes of Ove Arup & Partners
in September, 1988. The CCRC, under the chairmanship of Mario Asin, has had
the responsibility for revising the original drafts into the final published forms.
Mr. Paul Taylor of Berrymans and Mr. Mark Griffiths of Griffiths & Armour
submitted commentaries on the Agreements and the availability of these
commentaries helped FIDIC to decide to embark on the preparation of this Guide,
All members of the CCRC contributed to the Guide and these members are
Mr. Mario Asin, Chairmen during the time when most of the work of preparing the
Guide was undertaken; Ms, Fatma Colasan; Mr. Hans Ammendrup; Mr. Pablo
Bueno; Mr. Jean-Bernard Loubriat, and Mr. Peter Batty, Chairman at the time the
Guide was completed. The Executive Committee Members with prime responsibility
for the work of the CCRC during preparation of the Guide were firstly Mr. Ron
Thiffo and latterly Mr. Bill Lewis.
During preparation of the Guide Messrs. Taylor and Griffiths continued to provide
advice and substantial comments, and Mr Stevea Francis of Berrymans provided
coordination and effected the incorporation of such comments.
Its noted that this Guide supersedes FIDIC's 1977 publication, entitled “Guidelines
for Ad Hoc Collaboration Agreements between Consulting Firms”,‘TABLE OF CONTENTS
1
1
4.
42
43
44
45
INTRODUCTION,
Background
General approach used in drafting
the Joint Venture (Consortium) and Sub-Consultancy Agreements .
GENERAL DISCUSSION
ON FORM OF COOPERATION AGREEMENT...
LIABILITY AND INSURANCE
RELATED TO THE COOPERATION AGREEMENTS...
Insurance of Liability in Joint Venture Agreements . 4
Genera sn — ve
‘The Akemative Liability and Insurance Clauses. 5
Project Insurance in a Joint Venture Agreement. . 1
Sharing the cost of insurance...
Imposed Insurers
Insurance of a Sub-Consultant..
GUIDE TO COMPLETION
OF THE JOINT VENTURE AGRI
Applicable Circumstances .
Basic Requirements for Completion of the Joint Venture Agreement ue. HL
Structure of the Joint Venture Agreement,....
Commentary and Additional or Alternative Wordings
to the Standard Form M4
Alterations to the Standard Form
for a Continuing Joint Venture Agreement... 25.
Sa
52
53
GUIDE TO THE COMPLETION
OF THE SUB-CONSULTANCY AGREEMENT...
Applicable Circumstances
Structure of the Sub-consultancy Agreement
Suggested Wording for Completing the Schedules...
PRE-CONTRACT AGREEMENTS ..
Annexe 1 Liability and insurance clauses for a
“Continuing Joint Venture agreement”...
Annexe 2 Sample Pre-Contract Agreement...
‘Appendix A Sub-Consultancy Agreement
Appendix B-_ Joint Venture (Consortium) Agreement.1. INTRODUCTION
This introduction describes briefly the background to the Joint Venture (Consortium)
and Sub-Consultancy Agreements and the general approach used in drafting the
Agreements.
11 Background
Modem engineering projects are often very complex and must be conducted with
{ull awareness of the total social and physical environment. They frequently require
degrees of technical sophistication and ranges of skills which can best be provided
by Consultants sharing their respective technical resources, geographical presence
and local knowledge as an interdisciplinary team, comprising either @ Joint Venture
(Consortium) or a prime or principal Consultant with @ number of Sub-Consultants,
Such organisations may also be considered as suitable vehicles for transfer of skills
and knowledge, when this is an important part of the project.
‘Any Joint Venture or Sub-Consultancy needs a formal Agreement stating what each
Firm will contribute to the relationship, what each is intended to receive from the
relationship and how they will deal with any problems that arise either within the
Joint Venture or between the Consultant and its Sub-Consultants or in any project
being handled by the tear,
In order not to jeopardize the harmonious completion of the Project any Agreement
must achieve:
i, Consistency with the Services Agreement or Main Agreement
‘entered into with the Client.
ii, Proper division of the tasks each participant is to undertake,
iii, A clear and non-formalistic framework for resolving disputes.
iv, In the case of a Joint Venture apportionment between Members of
any remuneration from, and/or profits and losses of the Joint
Venture, and of any liabilities incurred by the Joint Venture,
During the last few years FIDIC and other organizations have sponsored seminars or
scheduled workshops aimed at increasing the participation of local, indigenous,
consulting firms in internationally funded projects, particularly those which are
implemented in or are to benefit the country of the local firm.Jn many countries such firms compete, without any outside assistance, against
international consulting firms. In other countries, where local consulting
engineering firms have only a short history, such firms can only participate in
internationally funded work in conjunction with international firms. Often the
international firm and the local firm will find it most advantageous to associate on an
‘ad hoc basis, that is for the sole and specific purpose of competing for and
undertaking a certain project. However, a problem may occur ifthe local client is
determined to use the project to develop his own in-house engineering capacity.
In 1977, FIDIC had published “Guidelines for Ad Hoc Collaboration Agreements,
between Consulting Firms”, but the renewed interest in ad hoc collaboration,
‘coupled with the fact that in 1989 FIDIC published its “Client/Consultant Model
Services Agreement” (The White Book), prompted a decision to publish model
forms, compatible with the White Book, for Sub-Consultancy and Joint Venture
(Consortium) Agreements
Such forms of Agreement were published by FIDIC in 1992, and these forms are
included in the Appendices to this Guide.
1.2 General approach used in drafting
the Joint Venture (Consortium) and Sub-Consultancy Agreements
‘The general approach used in drafting these two Agreements was to start with tried
and tested forms used over a period of time by an international firm for making ad
hoc associations with other firms, including local indigenous firms in the countries
of the projects.
Modifications were made to the starting drafts, principally with the aim of:
making the Agreements compatible with and suitable for use when FIDIC’s
White Book will be used for the Agreement between the Consultant and the
Client;
{in recognition that the drafts were prepared by an international firm which
expected to take the lead or prime position, making the agreements more
even handed, and, in the case of the Sub-Consultancy Agreement,
recognizing that in many cases the local firm will be the Consultant and the
international firm the Sub-Consultant; and
attempting to simplify the docurnents and excise any legal jargon applicable
only to particular jurisdictions.2. GENERAL DISCUSSION
ON FORM OF COOPERATION AGREEMENT
“There are two basic forms of cooperation: Joint Venture and Sub-Consultancy.
Although in some cases the cooperating firms can choose which form to adopt, the
Client's decisions will often dictate the form of cooperation between Consultants.
‘The following points should be considered in deciding the form of cooperation
between the participating firms:
Ina Joint Venture all Parties to the Agreement will have considerable
influence on the working decisions of the team and will almost always carry
joint and several liability. Many Clients see this as a major advantage of a
Toint Venture.
‘Where all firms make a significant contribution to the solution of all issues
a Joint Venture will usually be the most appropiate form of cooperation.
‘Where one of the Consultants has only @ small, well defined input he should
bbe aware of the onerous responsibilities that joint and several liability can
‘carry and he may wish to be employed as a Sub-Consultant, if necessary
agreeing to a specific collateral warranty with the Client.
With a Sub-Consultancy arrangement, the Main Consultant will have control
of and responsibility for all major decisions. This will in most cases allow
1 simpler project organization, The Main Consultant will bear sole
contractual lisbility to the Client except where the Sub-Consultant has
entered into a collateral warranty,
‘Some Clients prefer to hire one Consultant and let him organize Sub-
‘Consultancy(ies) for services which cannot be undertaken within his own
‘organization. Often, such Clients will reserve the right to approve the Sub-
Consultant(s) and, in some cases, also the terms between the Main
Consultant and the Sub-Consultant. The Sub-Consultant’s contractual
liability will be to the main Consultant through the Sub-Consultancy
Agreement.3. LIABILITY AND INSURANCE,
RELATED TO THE COOPERATION AGREEMENTS
3.1 Insurance of Liability
Joint Venture Agreements
3.4L General
‘The partners should bear in mind the philosophy applied in drafting the White Book
clauses; namely that to impose a liability on any organization is pointless unless the
organization has either assets or insurance to cover that liability.
In considering the liability and insurance clauses it is important to maintain a
distinction between the three separate elements of liability to the Client, division of
that liability between the partners and the insurance necessary to meet that liability.
Nevertheless the three separate elements must be considered together. The ligblity
to the Client will determine what liability has to be divided between the partners and
What insurance is needed; what insurance is available will determine the liability that
the Members of the Joint Venture can prudently accept and thus what liability can
realistically be agreed to,
Under the White Book Conditions and under most Services Agreements, the
Consultant must insure against its liability to the Client, Tis obligation is the
reference point for any Agreement between the partners on insurance. However
they divide the obligation between themselves, they must be sure that their liability
is at all times insured.
‘Where the Agreement between the Joint Venture and its Client is under the White
Book Conditions the effect of Clauses 18 and 19 of the White Book is to impose on
the Joint Venture the obligation to use all reasonable endeavours to arrange and
‘maintain agreed levels of insurance and to restrict the Joint Venture’s liability to
what is actually recoverable under that insurance. ‘The first question that has to be
asked is, therefore, how best can insurance be arranged. Typically, insurance has to
be bought on a year by year basis, and a very important factor in determining the
suitability of alternative arrangements will be the relative degree of probability of
being able to continue that insurance, so that the most suitable insurance
arrangements may be determined and incorporated into the Agreement with the
Client.
Because continuance of any predetermined scheme of insurance cannot be
guaranteed, it may also be wise to provide for alternative insurance schemes to be
adopted in the event that the original arrangements, for any reason, cannot be
maintained, The administrative arrangements for the purchase of insurance become
task to be allocated within the Joint Venture to the Member, or Members, bestable to undertake it, Fall-back arrangements, for sharing of the Joint Venture’s joint
and several liability to the Client as between the Joint Venture Members, are
necessary £0 provide for the situation where insurance is unavailable, inapplicable,
or insufficient and the protection of White Book Clause 18.2 is not available.
‘The drafting of the Joint Venture Agreement liability and insurance clauses (Clauses
14 & 15 of the Joint Venture Agreement) thus needs to take into account both the
anticipated liabilities which the Joint Venture will undertake to Clients and the
insurance resources to which the Joint Venture has access. Unless these external
factors are taken fully into account there is a real danger that the liability and
insurance clauses within the Joint Venture Agreement may prove unworkable.
3.1.2 The Alternative Liability and Insurance Clauses
Section 4 of this guide gives a number of altemative sets of Clauses 14 & 15 for
achieving the insurance a Joint Venture may require, as discussed below:
If there is a clear demarcation between the Work of each Member, and if each has
equal access to insurance in an efficient market, then the Members can individually
insure against the liability which may fall on the Joint Venture arising out of the
Work that each Member has undertaken, This is a popular method, often adopted
by major organizations who wish to retain control of their operations, but it brings
its own difficulties. Not only must the demarcation of work be clear, but that
demarcation must survive throughout the Project, and, above all, must be sustainable
without dispute, if claim is made,
‘Where this system is adopted, there will be a need to allocate to one of the Members
a specific duty to co-ordinate the Work of the Members, and enable it to determine
‘which insurer is responsible where, through a failure of co-ordination, some
essential task is not undertaken or is delayed because it was not properly allocated.
Itis essential to ensure that each Member's insurers have given their agreement to
this method of insuring the Joint Venture’s liabilities and have also agreed that they
will not seek any recovery from the insurers of the other Members on the basis of
their joint liability to the Client. If any of the Joint Venturers changes his insurer it
will be essential to seek the new insurer's agreement to the arrangement.
Even so, each of the Joint Venture Members may wish to seek contingent cover
against the failure of another Member's insurance, which would leave him exposed
10 liability arising out of work with which he has not been directly involved.Otherwise, each Member will be relying solely on another Member’s insurance to
cover losses for which they are all jointly liable to the Client. This will be
particularly relevant when the Agreement with the Client is not based on the White
Book and the benefit of its Clause 18.2 is not available,
Series “B" Clauses Ds 1k is not
In a Project where the responsibilities between Members cannot be clearly defined,
or where individual Member's Work is dependent upon effective interfacing and co-
ordination with that of other Members, it may not be practical for each Member to
insure against a liability arising out of a defined part of the Joint Venture's Work,
In these circumstances such an arrangement could simply encourage the Members
and their insurers to enter into protracted argument about their respective defence to
the Client’s claims, In such a situation the most sensible course may be for one
‘Member, probably an intemational Member with direct access to the world’s major
insurers, to agree with its insurers that the lability of the Joint Venture as a whole
bbe brought within its existing insurance. Again, the other Members of the Joint
Venture may feel that they need contingent cover against the agreed insurance
failing, or ceasing to be available, for any reasons.
Series lauses - Where Responsibil ific Ta ssignable
‘The combination of these two methods of insurance may be feasible under which
one Member will have the responsibility for arranging insurance for all aspects of
the Joint Venturer’s Work other than those parts of the Work which are specifically
allocated to a nominated Member both to undertake and to insure. This may be a
suitable method of providing for Projects where the mix of responsibilities may vary
through different phases of the Project’s life. It is not uncommon, for example, for
‘Work on feasibility studies to be a joint task where responsibilities would be difficult
to define, for detailed design to be divided into well defined packages undertaken by
different Members of the Joint Venture, and for Services atthe site during
construction to be provided by a team drawn from all Mernbers of the Joint Venture
in circumstances where it would be difficult to disentangle their respective
responsibilities,
Series “D” re bility to Ins
AA further alternative may be to agree that the insurers of each Member of the Joint
‘Venture will contribute in pre-determined proportions to any claim against the Joint
Venture regardless of the strict allocation of liability as between the Joint Venturer.
Remember that, like all the other arrangements, this will require the specific
agreement of all the insurers involved. Again, contingent cover against the failure
of any Member's insurance may be important.
63.13. Project Insurance in a Joint Venture Agreement
Itwill be noted that all these recommended insurance arrangements rely on insuring
the Joint Venture’s liability under the normal annual insurance policies, aranged by
‘one or more of the Joint Venture partners. While not universally so, there are for
‘most consultants substantial difficulties in arranging insurance cover for professional
liabilities under policies of more than twelve months duration, It is often impractical
to arrange policies of sufficient duration to cover the whole period of potential
liability which the Joint Venture may have in relation to a Project for which itis
‘engaged. In many jurisdictions, liability for personal injuries is measured from the
date of injury and not from the date of its cause, so that itis impossible even to
determine a maximum period for the Joint Venture's potential liability
Ifa Project policy is arranged there will generally be the need for premiums to be
continued to be paid after the Joint Venture’s Work is completed. The amount of
those premiums cannot be determined in advance. This poses very difficult
problems of the retention of funds to meet unknown future cost, The alternative
methods proposed permit the Joint Venture’s lizbility to continue to be insured,
along with liabilities for other work undertaken by the Joint Venture partner
responsible for arranging insurance, for so long as that Joint Venture partner
continues in business. It should be possible to arrange this on the basis that no
specific premium is charged.
Latent Defects Insurance
Itmight be appropriate for a Joint Venture Member, as indeed for any Consultant,
to recommend that his Client consider the purchase of Latent Defects Cover where
this is available, This will permit the cost of rectifying insured defects to be
recovered on proof of damage, and will remove the necessity for the Client to allege
negligence against the Consultant as a precondition (o claiming on insurance,
3.14. Sharing the Cost of Insurance
‘The Joint Venture Agreement will need to contain provision for the Members of the
Joint Venture to contribute equitably to premium costs, and in particular where a
Member is nominated both to undertake and to insure specific tasks (in accordance
with “C” Draft Clauses 14 & 15 ), the Joint Venture will wish to avoid paying
premium on the same fees twice,
Consideration will also need to be given to the handling of any claims which may be
made against the Joint Venture. It is normal for professional indemnity insurance to
requite the insured to meet a specific excess, Le. the first part of any claim will be
uninsured. The Joint Venture Agreement will have to contain agreement as to howthe Joint Venture partners will contribute to that excess, and generally itis
recommended that all partners should have a continuing obligation to contribute.
‘This will help to reinforce their obligation to assist in defence of any claim which
should be the subject ofa specific clause inthe Joint Venture Agreement,
‘Whatever arrangements a Member makes about liability and insurance itis
imperative that it keeps its insurers fully informed. If a Member takes on extra
liability under a Joint Venture Agreement, or ifit gives up a right to recover a loss
from a Joint Venture pariner or anyone else, that affects the risk for which itis
secking insurance. The whole cover, and not just that for the Member's Joint
Venture Work, could be invalidated by a failure to keep insurers informed.
3,15 Imposed Insurers
In arranging insurance it will be necessary to comply with the local legal
requirements which may even call for insurance to be organized with an insurer in
the Country of the Project, although such requirement would be unusual and would
not be practical in most developing countries. Care will be necessary to ensure that
arrangements are made for the continued existence of cover after completion of the
Project, and agreement will need to be reached as to which insurance company will
control the handling of claims.
Jn the case of a Joint Venture, this may make it appropriate for insurance to
be arranged by the local Member provided that the Joint Venture has the
full protection of Clause 18.2 of the White Book. Altematively, it may be
preferred that an international Member of the Joint Venture makes
arangements for its usual insurer to provide cover, and for a local company
to “front” making reinsurance arrangements with the Member's usual
insurer.
A sub-consultant will have to consider how far local insurance law applies
to hinn. If that law is applicable, similar “fronting” and reinsurance
arrangements may be necessary.
32 Insurance of a Sub-Consultant
‘The obligations of the Sub-Consultant to arrange insurance are stated in Clause 6 of
the Sub-Consultancy Agreement. The insurance is to cover:
the Sub-Consultant’s liability under Clause 5;
the Sub-Consultant's publie/third party liability, arising out of or in
connection with the Sub-Consultancy Services; andany other risks or events stipulated in the Agreement or required by the laws
of the Country.
Seen from the point of view of the Sub-Consultant and his insurers, the Consultant is
the client. The Sub-Consultant must accept the obligation of participating in the
defence of any claim arising out of his part of the Services.
‘Should any extension of the Sub-Consultant’s insurance be necessary and be
impossible to obtain, or if it is deemed to be too expensive, it may be possible (but,
‘except in countries where insurers normally expect to cover the liability of Sub-
Consultants in the Consultant's policy, it is not recommended where other options
exist) to include cover for the Sub-Consultant under the Consuitant’s insurance. ‘The
following points will need to be considered
Will it be possible to arrange the insurance for the whole of the liability
period, or must premiums be negotiated every year ?
IFpremiums are to be paid every year, is the Sub-Consultant to pay his
share annually, o is the Consultant willing to accept payment based on an
estimated development in premiums ?
How is the Sub-Consultant going to pay his part of the premium ?
How is the excess to be paid? Will the Consultant accept to do this against
an up-front payment, or will the Sub-Consultant pay his part if his own
liability is established ?4 GUIDE TO COMPLETION
OF THE JOINT VENTURE AGREEMENT
4.4 Applicable Circumstances
‘The Joint Venture (Consortium) Model Agreement was prepared essentially to be
used for the association between two or more Consultants, when:
the association is for marketing and/or performing the Services required for
1 specific Project, rather than for a more permanent type of arrangement;
and
cone party will be an international firm and one may well be @ local firm in
the country of the Project.
‘Although not necessary for the wording of the Joint Venture (Consortium) Model
‘Agreement, itis recommended that FIDIC’s new Client(Consultant Model Services
‘Agreement (the White Book) will be the basis of the Agreement for Professional
Services with the Client,
Notwithstanding the above, itis expected that the Joint Venture (Consoxtium) Model
“Agreement may operate successfully, either as is or modified slightly, when one or
‘more of the above conditions do not apply.
One purpose of a Model Agreement such as this is to stimulate the awareness of the
‘Members as to what should be in the Agreement to mitigate risks and avoid
disputes. The subject of insuring the Professional Liability of @ Joint Venture
(Consortium) or its Members is particularly problematical. Accordingly, the more
‘easily defined liabilities and direct control afforded by a Sub-Consultancy
‘Agreement will, in many cases, be preferred.
Certain issues deserve detailed attention at the proposal stage, to avoid the very real
possibility of winning the Project only to find that one Member cannot meet its share
ff contractual obligations; in particular, the matter of insurances and guarantees
‘warrants early attention.
In countries where it is inappropriate to use the title Joint Venture for an ad hoc
association, but where Consortium is an acceptable title, the wording in the Model
‘Agreement should be changed accordingly.
“The provisions of the Model Agreement are intended to operate whether the Joint
‘Venture (Consortium) is between two or more firms, but, to facilitate drafting, the
Model Agreement is worded as if there will be only two. ‘The wording must be ad-
justed if more than two firms will participate,
10One objective of this Model Agreement is the promotion of the team approach,
according to FIDIC’s goal of optimizing transfer of technology by exposing local
consultants to all facets of the Project, including environmental aspects, project
management and coordination. For this reason, this Model Agreement concentrates,
on the fulfilment of obligations, rather than the assignment of different parts of the
Services to the Members,
However, such approach is not mandatory for the Agreement fo operate, and itis
possible to specify the services to be performed and/or products that must be
delivered by each Member, when the requirements are sufficiently defined,
42. Basie Requirements for Completion of a Joint Venture Agreement
A Joint Venture Agreement must stipulate:
who the Members are, the roles they are to fulfill, and the purpose or
objective of forming the Joint Venture;
how costs, expenses, liabilities and any losses arising during the Joint
Venture will be met, and how any surplus or profit will be divided;
how the continuing rights and obligations will be carried after the
conclusion of the Joint Venture; and
the procedures for meeting all requisite administrative arrangements,
More specifically, and in order to effectively address these points, the parties before
drafting need to consider:
whether a single Project is envisaged or whether the relationship is to be on-
going (this is dealt with in more detail in Annexe 1 to this Guide);
for each Member, the commercial status of the firm, their expertise and
qualifications pertinent to the Services, and full information about their
ownership and any associated or subsidiary firms, the existence of which
‘might represent a conflict of interest ifthe Joint Venture is selected to
provide the Services;
the nationality of the Members and the location of the intended Projet or
Projects;
the laws (including competition lew or anti-monopoly law) governing the
operation of a Joint Venture in a particular country, as well as the laws
ugoverning the trading relationships between engineers of different
nationalities;
the influence of the Joint Venturers in the country where the Project (or
Projects) is located;
local currency and taxation arrangements, and local insurance requirements
(for example insurance regulations or the imposition of local insurers);
the procedures to meet the transfer of technology requirements of the Terms
of Reference and the Client/Consultant Agreement, with inclusions in the
time charts or task schedules of the transfer of technology programs;
the mutual approval ofthe staff members who will be designated as
“teachers” and “recipients”;
the budget of the Joint Venture to comply with transfer of technology
requisites, including the time required by the staff members of both parties,
the acquisition or rental of equipment specifically needed for these purposes,
and the cost of interpreters and translators; and
the reporting of the achieved results of the transfer of technology program,
or aspects, of a project.
4,3, Structure of the Joint Venture Agreement
‘The Standard Form FIDIC Joint Venture Agreement is drafted with the intention of
use for a specific Project. The notes in Sections 4.5 below offer a set of standard
amendments by which the single project Joint Venture Form can be modified to
become a suitable standard form for a continuing Joint Venture. If these
amendments are adopted, the continuing Joint Venture can provide the basis of a
relationship between Consultants for Projects undertaken under the White Book
Conditions. Other alternative clauses have been proposed for a variety of different
purposes, offering a considerable degree of flexibility and choice.
‘To be operative, the Joint Venture (Consortium) Agreement will require the
completion of several schedules. Those provided at the end of the document are, for
‘most projects, the minimum, They should be completed as follows:
Schedule 1, Project and Agreement Particulars - Schedule 1 is self-explanatory
and generally involves only developing the information called for in Schedule I to
make the Agreement workable.
Schedule 2, Financial Administration Services - As « minimum, Schedule 2
should stipulate:
2the Joint Venture’s (Consortium) accounting procedures. A Joint Venture
‘will generally only disburse monies to the Parties after it receives them
from the Client, and it will not have the means to raise financing itself.
Therefore, to cover the Joint Venture’s local operating cost, it will often be
necessary for the Members to provide funds. Normally, the sharing in the
provision of such funds should be proportional to the Members” shares in
‘he Joint Venture;
the records and accounts to be maintained by the Members (which must
include records and accounts necessary to comply with the Services Agree~
ment), the laws of the country of the Project and the laws of the countries
of the Members;
the process for preparation of the Joint Venture (Consortium) invoices to the
Client, which must be tailored to comply with the requirements of the
Services Agreement;
which Joint Venture (Consortium) bank accounts will be opened or will
‘operate, and which persons will have access to the funds (normally, a Joint
‘Venture or one or other of the parties to it will open or maintain accounts in
the country of the Project and in the country of each curreney payable under
the Services Agreement); and
how advance payments will be handled. To reduce problems associated
with adverse currency fluctuations and/or non-transferable local currencies,
it is recommended that the Members specify in Schedule 2 their
requirements (amounts and timing) of local, home country and/or other
foreign currencies, and that the combined requirements of all Members be
included in the appropriate appendix to (or at the appropriate place in) the
Services Agreement.
Schedule 3, Allocation of the Obligations - It will be necessary to specify the
obligations to be fulfilled by each Member in sufficient detail to satisfy and protect
the interests of the other Member(s). ‘This schedule should include at least the scope
‘of work and time schedule of the Services Agreement, and clearly indicate the
obligations to be met by each Member with the time schedule for accomplishing
such obligations,
Schedule 4, Financial Policy and Remuneration - It is necessary to cover in this
Schedule atleast:
how the Members will recover their respective promotional costs, if each
party is not expected to bear its own;
13how and by whom day to day operations of the Joint Venture (Consortium)
will be financed;
how funds received by the Joint Venture (Consostium) from the Client will
bbe disbursed for reimbursement of costs and distribution of Joint Venture
profits and losses (including clear definitions of profits and reimbursable
Costs) It is advisable to include in Schedule 4, a schedule (tentative or
otherwise depending on the basis of remuneration specified in the Services
Agreement) showing the anticipated amounts and timing of payments from
the Client, and how such payments are expected (by percentage or
otherwise) to be disbursed to the Members; and
rules about costs incurred by a Member but disallowed by the Client.
Generally ~ There are many topies about the completion of Agreements by
consulting firms which are discussed in FIDIC’s White Book Guide and which will
be relevant to the conduct of a Joint Venture (Consortium),
For example:
i) For Schedule 1, Clause 20.1 - Rules of Arbitration, see FIDIC’s
White Book Guide,
ii) For attestation of the Agreement, see also the above mentioned
Guide, in particular for the circumstances when the Agreement
should be under seal.
4.4 Commentary and Additional or Alternative Wordings
to the Standard Form
Opening Comment
‘The draft alternative clauses, presented below and in Section 4.5 provide for a wide
variety of circumstances, to extend the typical Joint Venture between a major
international practice and a smaller local firm, to cover multi-party Joint Ventures
and, above all, continuing Joint Ventures (for a term of years or several Projects) as
opposed to a single Project Joint Venture. Emphasis is given to the practical
distribution of executive and technical responsibility (and its consequences within
the Joint Venture).
A Joint Venture can take a number of forms but essentially the choice will be
between incorporated and unincorporated entities. Care must be taken in an
unincorporated Joint Venture, to ensure that this does not unintentionally create a
partnership with shared liabilities
4In very few, if any, jurisdictions, is there any established legal definition of a Joint
‘Venture. Whether it is viewed by local law as a partnership, an association or a
corporation, will depend entirely upon what the Members have agreed, or what the.
Jocal Courts decide the Members have agreed or have done.
Single project Joint Ventures are often not incorporated, For a continuing
relationship, incorporation is often sensible, but legal advice is then essential from
local lawyers, particularly on fiscal, regulatory and administrative questions,
Conditions and Terms
If further Members are to participate in the Joint Venture, the names, addresses and
descriptions of additional Members should be inserted at this point.
De
nitions and Interpretation
‘The definitions included in Clause 1 of the Joint Venture (Consortium) Agreement
(Sub-Clauses 1.1.1 to 1.1.14) are intended to be consistent with those set out in Part
Tof FIDIC’s Client/Consultant Model Services Agreement (The White Book)
If it is wished, additional definitions can be added to this section, as follows:
1.1.15. “Policy Committee” means the committee of the Members
constituted by the Members” Representatives.
1.1.16 “Member's Representative” means the person nominated by a
‘Member pursuant to Clause 3.5.
1.1.17 “Local Representative” means the person nominated by a Member
pursuant to Clause 7.10.
1.1.18 “Services Manager” means the person nominated by the Leading
‘Member (or by another Member on request of the Leading
Member) pursuant to Clause 7.12,
1.1.19 “Defaulting Member” means a Member declared in default of its
obligations in accordance with Clause 12 hereof.
Joint Venture
2.1 Ifthe Joint Venture is to be incorporated, Clause 2.1 should be amended
accordingly, and a further detailed Agreement will be necessary.
152.2 The officers of the Joint Venture should include the Representatives of the
Leading Member, and the other Member(s), the Local Representatives, the
Services Manager and (eventually) their duly appointed deputies.
For absolute avoidance of doubt, an additional Clause 2.4 can be added, to
‘provide that:
“Reference to a Member shall be deemed to include references to the
Leading Member in his capacity as a Member of the Joint Venture”.
23. There are good reasons why Members and the Client should be notified
bout changes of names or ownership of one of the Members of the Joint
Venture. Accordingly, Clause 2.3 could be modified as follows:
“Any Member which changes its name, or is taken over by or merged with
another firm, must promptly communicate details of the same to all other
‘Members and to the Client.
Unless otherwise agreed by the majority (al) of the Members, this
Agreement shall not terminate because a Member changes it name, or is
taken over by or merged with another firm, provided that new name or firm is
(an independent professional firm**) acceptable to the Client, and
officially accepted by him by a Variation or Amendment to the Services
Agreement.”
‘The final part of Clause 2.3 of the Model Agreement is unnecessarily cumbersome
and could be deleted. Further, as always in this agreement, the degree of Member
agreement should be explicitly stated. As amended Clause 2.3 could provide that:-
“Unless otherwise agreed by (“the majority of” or “all”) of the Members,
this Agreement shall not terminate if a Member changes its name, or is
taken over by or merged with another company or partnership.”
as applicable or as desired
** delete if not applicable or not desired
16Proposal Submission
3.1 As the Services Contract is intended to be the same as the Services
Agreement defined in 1.1.8, it would be preferable to substitute the
‘expression “Services Agreement” for “Services Contract” inthis clause.
Performance of the Work
4.1 The Work to be performed under the Services Agreement is intended to be
identical to the “Services” as defined in Section 1. It may be preferred to
commence this clause with the words “The Services shall be carried out .
instead of the wording as it stands.
4.2. ‘The Services should be performed in compliance with the provisions of the
Services Agreement. The words “to the satisfaction of the Client” are
unnecessary and should be deleted from 4.2 - they might otherwise create an
additional contractual burden,
Exceuti rit
7.1 This clause may not be sufficient to prevent a Member without authority
binding its co-members, because that Member may have apparent or
ostensible authority despite the lack of express authority, To avoid this
problem, the Services Agreement should also define who has authority to
act for the Joint Venture. It is strongly recommended that, following the
appointment of those with authority to act for the Joint Venture, formal
notice be given to the Joint Venture’s Client, bankers, Sub-Consuliants and
any other party with whom the Joint Venture is likely to have dealings.
7.2. The commitment referred to in the last sub-section of Paragraph 7.2 is
intended to relate to the undertaking of any legal or financial obligations on.
the part of the Members.
General Comment
Itis often desirable to include a provision for proxies of Representatives to attend in
lieu of the usual Member if appropriate. It may also be desirable to state the
quorum for the meeting. It should be made clear how many votes each Member is
entitled 10, since in some circumstances this might be dependent upon the share
holding or contribution to capital by a Member, rather than a one vote per Member
basis.
7Mombers may wish to add a clause at the end of Section 7 whereby they have the
right to appoint deputies to the local managers.
‘Documents
If it is agreed that copyright should be restricted to the Member producing the
documents in question, Clause 8.6 should be amended accordingly.
Personnel
9.5 Where Sub-Consultants are retained by the Joint Venture, itis
recommended that the FIDIC Sub-Consultancy Agreement be adopted.
‘Member in Default
12.2 The procedure for declaring a Member to be in default is the most stringent
sanction available to the Joint Venturers, short of terminating the entire
Agreement. If more detailed provisions are required, the existing Clauses
12.2, 12.3 and 12.4 may be substituted by the following:
Altemative Clause 12.2
“A Member who fails within a reasonable time and without reasonable ex-
ccuse to performn the Services required of it under this Agreement, or any other