Forming a JV for an international tender

Why firms team up, and what they sign up to

Consultancies and NGOs team up for three reasons: to meet selection criteria none of them meets alone, such as turnover or a number of similar contracts; to add expertise or a local presence the assignment needs; and to field a stronger team of experts.

Under PRAG, the European Commission’s procurement rules for EU external action, groups of firms (consortia) can apply and tender just as single firms can. A consortium can be a permanent, legally established grouping or one formed informally for a single procedure, and the contracting authority cannot require a legal form before you apply or tender. It may ask the winning group to adopt one after award, if that is needed to perform the contract.

The price of teaming is commitment. Every member is liable for the whole contract, and the team is fixed from the moment you apply. So choose the structure deliberately, check that the partnership really meets the criteria, and agree the important points in writing before anyone signs.

The rules quoted here come from PRAG 2021.1 and its standard documents for service tenders. World Bank-financed and other donor tenders have their own rules for joint ventures and associations, so always check the documents in front of you.

Consortium member, subcontractor or capacity provider

There are three ways to bring another organisation into a bid, and they carry different weight:

A few rules apply whichever role you choose:

• Every member, capacity provider and subcontractor must be eligible under the nationality rules of the programme funding the contract and must sign a declaration on honour on the exclusion criteria. If one consortium member is ineligible, the whole consortium is excluded.
• Relying on another entity’s capacity takes a written commitment from it to put those resources at your disposal. The contracting authority checks capacity providers and planned subcontractors against the relevant selection criteria, and must ask you to replace one that falls short.
• If you hire experts through another firm rather than employing or contracting them yourselves, that firm is a subcontractor.
• During the contract, a subcontract needs the contracting authority’s authorisation, which it has 30 days to give or refuse. The subcontractor has no contract with the client, and you remain responsible for its work.
• The contracting authority can reserve critical tasks for the tenderer itself or, for a consortium, for one of its members.

Check that the partnership meets the criteria

The contract notice must say how each selection criterion applies to a consortium. In the standard template, criteria apply to the consortium as a whole unless stated otherwise, and some, typically financial ones, may have to be met by each member. Read that line before you choose a partner.

A worked example

Take a 24-month service contract with a maximum budget of €2,400,000. The template’s example turnover criterion compares average annual turnover over the last three closed years with the annualised maximum budget: the maximum budget divided by the initial duration in years, here €1,200,000. Its example liquidity criterion asks each member for a current ratio (current assets divided by current liabilities) of at least 1 in the last closed year.

On its own, the consulting firm misses the turnover criterion. Together, the consortium clears it with €1,400,000. But the NGO’s current ratio of 0.80 looks like a fail, and this criterion applies to each member.

Before you look for another partner, read the note in the request to participate form: for not-for-profit organisations, the ratio is calculated without the pre-financing received from donors for ongoing projects. €150,000 of the NGO’s liabilities is exactly that, so its ratio is €300,000 / €225,000 = 1.33, and the consortium qualifies.

References from earlier consortia

The request to participate form allows at most 15 references for the whole consortium. For a project you delivered as part of a consortium, the documentary evidence must show the share you completed, and only the part completed within the reference period counts. Ask for certificates that state your share when each project ends, not when the next tender asks for them.

Teaming to meet a criterion is normal, but it does not replace real capacity. The professional capacity criteria check that the candidate has staff and expertise in the field; the template’s word for a candidate that only finds experts to fit a project is a “body shop”.

Joint and several liability and the lead partner

The general conditions of the EU service contract bind every member of a joint venture or consortium jointly and severally to the contract’s obligations, including any amount to be recovered. Whatever your internal work split says, the contracting authority can hold any one member responsible for the whole. That is why the internal agreement on liability, covered below, matters so much.

The consortium designates one member to act on its behalf. That lead has the authority to bind the consortium and is the sole contact for all contractual and financial matters. Being lead does not by itself decide a member’s weight in the consortium, but every contractual and financial exchange with the client runs through one firm. The lead needs a power of attorney from each member, and the others need clear rules on how payments are passed on.

Rules that lock the team in place

Once you apply, the team is fixed. These are the rules that catch consortia out:

• One request per firm. A firm can appear in only one request to participate or tender for a contract, alone or as leader or member of a consortium. If it appears in more, every request it is part of is excluded. Make sure your partners have not also joined a competitor.
• Same team at tender stage. The tender must come from the consortium that was shortlisted; a different composition is excluded unless the contracting authority approved it in advance. Shortlisted candidates may not form alliances with each other or subcontract to each other for that contract.
• Changes in two cases only. A merger or takeover of a member, or a member that is excluded or fails a selection criterion that applies to it. Even then, the contracting authority must approve in writing, the others must still meet the selection criteria without that member and without replacing it, they must take over its tasks, and the change must not alter the evaluation of the tender. Otherwise the request or tender is rejected.
• After signature, too. Changing the composition of the consortium needs the contracting authority’s prior consent, and a change without it can lead to termination of the contract.
• Everyone is checked. Before approving the shortlist, the contracting authority checks the leader, members and subcontractors in the EU’s early detection and exclusion system and against EU restrictive measures.

Make the partnership score in the tender

At tender stage the partnership itself is scored. The standard evaluation grid for fee-based contracts includes the involvement of all members of the consortium, worth 5 of the 100 technical points by default. The tender must describe each member’s input and how tasks and responsibilities are shared between them. A tender from a single firm gets the maximum points for this criterion, so a consortium that cannot show a real role for each member gives away points a single firm gets for free.

The same grid scores the back-up function: the support the firm gives its experts in the field. Evaluators are told to see permanent staff who regularly work as experts on similar projects as an advantage, and a firm that only uses freelance experts as having weaker backstopping. In a consortium, describe the back-up each member provides; our methodology guide covers the rest of that section.

Then split the key experts sensibly. Each must commit exclusively to your tender, and an expert provided through a third party makes that party a subcontractor. Our guide to key expert CVs covers the rules, and the bid/no-bid guide covers deciding whether a partnership closes the gap at all.

What to agree before you sign

Sign a teaming agreement before the request to participate goes in. The rules above decide what it has to cover; the terms are yours to negotiate.

Get it signed by every member before you submit. Each member signs its own declarations in the request to participate, and from then on the team cannot change without the contracting authority’s approval. Settling the work split and the money afterwards, from a weaker negotiating position, is how partnerships go sour.

Sources

• European Commission, Contract procedures for European Union external action: a practical guide (PRAG). The current edition and its annexes.
• European Commission, PRAG 2021.1 (PDF), the edition checked for this guide. Sections 2.3.1 (nationality), 2.5.5 (changes to the composition of a consortium), 2.6.11.1 to 2.6.11.3 (selection criteria, capacity-providing entities and subcontractors) and 3.4.2 (shortlists).
• European Commission, PRAG 2021.1 annexes (ZIP). Additional information about the contract notice (A5f), request to participate form (B3), general conditions for service contracts (B8d, articles 4 and 7.7), instructions to tenderers (B8b), evaluation grid (B8m1) and the evaluator’s grid with its guidelines (B12a).