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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 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. For ease of reference and work with the models, the authors have endeavoured to make sure the models are aligned both in terms of structure and terminology.

The aim of the 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 co-operate 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 construction projects. Co-operation 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. Users are cautioned that this ICC Joint-Venture Model Agreement is aimed for the needs of the construction industry and that other sectors may have a different approach, for instance in the Joint Operating Agreements used in the oil and gas industry.

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).

Main feature: Single point of contact and joint responsibility

Employers undertaking major projects and not having a preference for a multi-contracting structure with several contracts directly entered into with several contractors have increasingly over the years sought a form of contracting whereby there would be a single point of contact on the contractor’s side whilst maintaining potential recourse against all the major suppliers to the project.

This has caused contractors having the potential to deliver a substantial part of the works to be performed to seek co-operation with others, i) in the desire to share the risks and the liabilities that such major projects present, and/or ii) 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 contact and joint liability together with increased financial capacity to satisfy the quality, cost and timely completion of the project.

In addition to providing a jointly increased financial capacity, the single point of contact 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 or interactions between suppliers.

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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Joint venture and consortium

The main difference between the two is the 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 joint venture 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. Joint-Venture Members are generally kindred spirits in their field of business and understand each other’s business and the risks therein.

As a consequence, the operation of a joint venture normally calls for a management and governance organisation which differs from that of a consortium.

In a joint venture, the members typically manage the resources and work jointly and not every member for itself. The operation of a joint bank account separate from those of its members is hence the rule and not the exception. The sharing of the profit and loss of the joint project requires a joint book keeping separate from that of the individual members

. The joint management of resources, funding and accounting implies separate governing bodies, one with supervisory duties and one (or more) other(s) with executive duties for the day-to-day operations and management of the joint project.

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.¹

By contrast, in a consortium, the organisation is minimal. The co-operating parties, 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. 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 Joint-Venture Agreement is that of an open Joint Venture whereby the employer contract is entered into between the Employer and all of the members of the joint venture; all of the members of the joint venture are jointly and severally liable for the performance of the contract. Generally, one Joint-Venture Member is appointed by the other Joint-Venture Members as the joint-venture Project Management 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.

Joint governance and dispute resolution

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. However, in a joint venture, unlike in a consortium, majority decisions could be a possibility.

For the benefit of the project however, the principle of joint governance requires the back up of a robust system to deal efficiently 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 Project Management, 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.

Anti-trust and other compliance cautions

While there is no general rule whereby it would be forbidden for competitors to co-operate 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 [Page8:] infringement of competition law. In particular, the reasons for a co-operation can never be to form a strong block vis-à-vis the Employer by forming a price cartel.

Additionally, all matters of corporate social responsibility should be envisaged by the Joint-Venture Members in full consideration of the various public orders with jurisdiction, whether territorial or extraterritorial, national or supranational, to sanction them jointly or possibly as an accessory based on infringement of rules for combating corruption, forced and child labour, abuse of human rights and such fundamental duties of international operators.

Because the individual members of the Joint Venture do not have control on the respective compliance management of the other Joint-Venture Members, there is a need for an effective joint approach to compliance for the Joint Venture itself for those fundamental duties as well as all other obligations to the public such as tax, competition, trade regulations and embargoes, and environmental obligations.

Applicable contract law, public order and tax cautions

Because the hypothesis of this ICC Model Agreement is that the Joint Venture in question is an international operation, parties have the choice of the applicable contract law, such choice being part of the negotiation. Arguments might militate in favour of the law of the country coinciding with the nationality of the largest number of parties, the law of the country of the party whose intake is the most significant or the law of a neutral jurisdiction 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).

Irrespective of the law that the Joint-Venture Members shall choose to govern their Joint-Venture Agreement, clearly another question is the required close and advance attention of the potential Joint-Venture Members to the various legal public orders which shall be applicable and in particular local codes and regulations such as health, safety and environmental regulations as well as 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 in the various relevant countries will need to be scrutinized (whether corporate income tax, value-added tax and other levies such as customs duties) as they might substantially impact the overall economic balance of the Project for the Joint-Venture Members. The respective local rules regarding construction permits, manufacturing, erection activities, visas for personnel and all other activities necessary to fulfil the Contract, also can have a considerable impact on the joint venture and the Joint-Venture Members and its/their activities, regardless of or even depending on where the Joint-Venture Members’ seat or the joint venture’s seat/administrative office is. The users of this model agreement must analyse these impacts and take the applicable local laws and jurisdiction into account before concluding this agreement and before taking options such as the choice of the joint venture’s seat/administrative office. 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. Generally, the plurality of legal orders which are applicable to an international project creates additional exposure when the project is an unincorporated international joint project. The multiplicity of the public orders that can claim jurisdiction over the operations of the joint international project calls for close advance scrutiny by the legal and tax advisors of the Members, to prevent potential double taxation or other such tax and legal risks which could affect the anticipated profit and, more generally, the financial projections of the parties.

In fact, once a joint bid has been submitted, the Joint-Venture Members are jointly committed to that bid and, in most jurisdictions, not allowed to change the composition of the joint venture without being exposed to losing the bid. This means that the legal and tax advance advice relevant for the financial projections of the parties must be obtained well in advance of the joint bid, whether the context is public or private bidding.

Tax issues (corporate income tax or value-added tax) are particularly relevant to the financial projections of the parties, for instance with regard to a potential administrative seat and/or permanent establishment(s) of the joint venture. It is furthermore not infrequent that joint operations may have two or more different divisions, with one where the main construction site is situated and one or more others where other substantial parts of the work are performed or where control of the joint operation is exercised, control being a major test point for the applicable international accounting principles and the related tax issues, on which the authorities of the various countries in which the joint venture operates may have different approaches

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As a conclusion, it is clear that the ICC warning that “it is not possible to create a model whereby ‘one-size-fits-all’ and therefore each and every user should obtain separate legal and/or financial and/or tax advice to make this model fit the specific business purpose for which he or she intends to use this model” should be recalled with particular emphasis in respect of this Model Joint- Venture Agreement.

In the same view that a “one-size-fits-all” Model Agreement is not feasible in the variegated and highly case-specific context of joint ventures, this Model Agreement does not provide standard language for the allocation of potential interface risk (i.e. the points where two or more supplies, work packages or systems meet and interact), which is inherent to projects with multiple contractors interacting for the execution of work whether simultaneously or in necessary sequence, or again whether on the same worksite or shared facility or infrastructure. Because it is project specific, interface risk and its allocation must be part of the negotiation of the parties and needs to be evaluated. Because interface risk is largely unpredictable, the solution of this model agreement is that interface risk will be managed by the Steering Committee/Project Management.

Conversely, the Model Agreement aims at providing strong guidance regarding the optimal governance and management of a Joint Venture.

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ICC Model Joint-Venture Agreement

For supplies and services provided through an open Joint Venture (including bidding phase) by and between:

…………………………………………………………………………………………………………………………………………………………

and

…………………………………………………………………………………………………………………………………………………………

and………………………………………………………………………………………………………………………………………………………

This Agreement contains an arbitration clause and clauses limiting and/or excluding the liability of the Joint-Venture Members in certain circumstances.

Disclaimer

The user of this ICC Model Joint-Venture Agreement must at all times realize that ICC has had these Model Agreements created by a team of specialists and with the greatest care, to facilitate small- and medium-sized businesses to form consortia or joint ventures to expand and enhance their business and to enlarge their footprint in the world theatre of international business. However it is not possible to create a model whereby “one-size-fits-all” and therefore each and every user should obtain separate legal and/or financial and/or tax advice to make this model fit the specific business purpose for which he or she intends to use this model and the ICC disclaims any liability for the use of this model by anyone.

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