The International Chamber of Commerce’s (“ICC”) Commission on Commercial Law and Practice is, like ICC, in business for business, and acts as a focus group for all parties to international transactions. In recent years, the Commission on Commercial Law and Practice has published a number of model forms of contracts. Although the forms have covered a wide range of international transactions they have all been distinguished by the imperative that they be balanced and fair to all parties involved, since ICC represents all parties to all transactions.

In its role as facilitator the ICC Commission on Commercial Law and Practice has started to provide a number of standard forms of contract for the world of engineering, procurement and construction (EPC) projects. After its publication of the ICC Model Turnkey Contract for Major Projects and the ICC Model Subcontract the ICC Commission on Commercial Law and Practice has now developed two more model forms, one for joint ventures and the other for consortia.

SINGLE POINT OF RESPONSIBILITY

Employers undertaking major projects have increasingly over the years sought a form of contracting whereby there would be a single point of responsibility on the contractor’s side. This has caused the contractor to seek co-operation with others, 1) in the desire to share the risks and the liabilities that such major projects present, and/or 2) in the desire to form a co-operation that encompasses all the disciplines necessary to supply all the various components of a major project that the Employer seeks and that provides the Employer with the desired single point of responsibility and, as the case may be, reduction of the number of contractors/suppliers.

For Employers the single point of responsibility makes the management of the whole project much simpler as they do not have to manage the supply of each individual supplier or the interfaces between suppliers.

A single point of responsibility is however a negotiable feature of a consortium agreement and consortium members may prefer to agree with their joint Employer that each consortium member shall be liable towards the Employer for the performance of its own scope of work (several and not joint liability). This Model Agreement should in that case be used only with the adequate adaptations.

Another word of caution is appropriate here. The Employer may select companies that may bid on a yet to be issued “invitation to bid” through a so called “pre-qualification procedure” whereby either a group of companies that have organized themselves in a joint venture or a consortium is pre-qualified, or whereby individual companies are pre-qualified individually. Once the prequalification procedure has been closed by the Employer, pre-qualified joint ventures or consortia may usually not be changed in their composition. In the case of companies individually prequalifying, non-pre-qualified companies may not join a joint venture or consortium of pre-qualified companies. Not abiding by these good practices may severely compromise the whole of the bidding procedure and the Employer cannot accept the admission of a non-qualified company, as awarding the project to a non-fully pre-qualified joint venture or consortium may be challenged by non-awarded parties in a court of law.

The aim of ICC in producing a standard form for a Joint Venture Agreement and for a Consortium Agreement is to provide a balanced model form of agreement for those parties that wish to cooperate not on a sub-contract basis but as joint operators (in a non-incorporated form, thus not as a legal entity) in the execution of major project. It is the cooperation among members that 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 counterparty risk, i.e. the Employer’s ability or willingness to pay, is shared amongst the jointventurers or operators. Unlike in subcontracts, payment on an “if and when” basis is the rule and not the exception. Similarly, joint venturers or operators, unlike subcontractors, typically assume counterparty risk of each other for the benefit of the Employer (joint and several liability).

[Page8:]

MARKET ENTRY CO-OPERATIONS

Independently from employers’ objectives, businesses also actively seek co-operation with others and in particular, 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. Because of its balanced approach, this Model Agreement is well adapted to a mutually beneficial market entry co-operation.

JOINT VENTURE AND CONSORTIUM

The main difference between the two is the extent to which the partners for their own immediate benefit share performance risks, i.e. the risks innate to the nature of their resources, technologies and processes. In a joint venture the members share all risks, liabilities, rights, benefits and profits in proportion to their participation in the joint venture, such proportion normally being determined based on the resources 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. Joint venture members are generally kindred spirits in their field of business and understand each other’s business and the risks therein.

In a consortium the co-operating parties, though jointly and severally liable for the whole of the contractual obligations towards their employer, are, towards the other consortium members, liable for the proper execution of only their individual parts of the total scope of work. This form of co-operation should be chosen if the consortium members 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. Consortium members are often operating in industries adjacent to each other, e.g. civil contractors and engineering contractors or dredging contractors.

The ICC Model Consortium Agreement is that of an open Consortium1 whereby the employer contract is entered into between the Employer and all of the members of the consortium; all of the members of the consortium are jointly and severally liable for the performance of the contract. Generally, one consortium member is appointed by the other consortium members as the consortium leader for managing the contract with the Employer; usually it has the authority to conduct negotiations for the members, but cannot enter into any binding agreements on their behalf.

ANTI-TRUST CAUTION

While there is typically no general rule whereby it would be forbidden for competitors to cooperate on one or several specific project(s), high caution must be exercised in the forming of such co-operations, which must be justifiable in terms of objective economic or technical necessity, so as to avoid any infringement of competition law. In particular, the reasons for a co-operation can never be to form a strong block vis-a-vis an employer by forming a price cartel as that would be against the law in any jurisdiction.

JOINT GOVERNANCE

It is the generally accepted view that decisions in a joint venture or a consortium will be made by the members collegially (in most cases in unanimity). It can never be that one member is forced to go along with a decision that it cannot agree to. It can be regarded as a universal principle that unlike the sovereign no subject has the power to impose its will to the other party(ies) to the joint operation.

For the benefit of the project however, the principle of joint governance requires the back up of a robust system to efficiently deal with differences, and to avoid that such degenerate into disputes. Where there is a deadlock with the potential to severely delay or harm the project, the solution may be that one of the joint operators, which will be the leader, is empowered to make unilateral decisions that are binding on the other(s), provided, that such decision is only binding on the other(s) unless and until it has been overturned in the agreed dispute resolution process.

[Page9:]

ICC MODEL CONTRACTS

In relation to the above, all indications in the model of any durations of processes, particularly in the decision making process, are indicative and for guidance only. Such time periods should always be revisited and (if need be) adjusted to fit with the requirements of the bidding process and the contract with the Employer.

The insurance section of the model agreements (Article 9 of the General Conditions) focuses on the project-related insurances under the assumption that any responsible party engaging in a major project through a joint venture or a consortium will have sufficient professional indemnity coverage in place to mitigate the risk of professional indemnity and thus such insurance is not mentioned in the insurance section. Moreover, if any additional joint insurance not mentioned in this model agreement is needed for the project, it is envisioned such insurance will be taken out by the members pro rata according to their respective participation in the project.

As mentioned above, the ICC Model Joint Venture Agreement and the ICC Model Consortium Agreement have been drafted with the ICC Model Turnkey Contract for Major Projects and the ICC Model Subcontract in mind. For ease of reference and work with the forms, the authors have endeavoured to make sure the forms are aligned both in terms of structure and terminology.

APPLICABLE LAW

In an international contract, parties have the choice of the applicable law, which is part of the negotiation. Some arguments might militate in favour of any particular legislation: the nationality of the largest number of parties; the nationality of the party whose intake is the most significant, the law of a neutral jurisdiction is chosen sometimes for reasons of impartiality and certainty. In any event, before choosing the law of a given country, users should check if the provisions of this model agreement conform with such law and if the chosen law has mandatory legal or tax effects which prevail over the parties’ agreement(s). While this model agreement is intended to cover all issues that are likely to arise in a clear and succinct fashion to minimize resort to national laws, the parties should be aware that many national laws provide default rules which may, in some cases, supersede the contractual arrangements of the parties. For instance, the choice to have an administrative seat of the consortium and the country where the parties elect to place it can have the effect of making a national law applicable.2

1
It is not uncommon in practice that a silent (or internal or undisclosed) consortium can be formed whereby the Employer contract is entered into between the Employer and one of the companies involved as the sole ostensible contractor. In that case, only the ostensible contractor is party to and is liable to the Employer for fulfilment of the contract. For those supplies and services that the ostensible contractor wishes to source from the outside, he can e.g. form a silent consortium with other companies. The “silent” members are not liable for the fulfilment of the contract in the contractual relationship with the Employer who will hence not benefit from joint and several liability. Lack of transparency to the Employer is another downside, such being alleviated, in a vast proportion of jurisdictions by the fact that, for human safety and other project management purposes, all and any party present on the worksite must be identified and declared to the Employer

2
Germany, Russia, Belgium and Italy, for example, have specific rules governing consortia.