Joint Venture OR Consortium

For
Execution of EPC Projects

Prepared By
Dr. Ajit Patwardhan
May, 2019
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 What is Joint Venture ?

• J.V. is a commercial arrangement between two or more

participants ( partnerships or Companies) who agree to
participate in a business enterprise for some profit.

• J.V. Partners normally share risks and profit equally or in

varying degrees as agreed.

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 Types of Joint Venture Agreements
Integrated J.V.
Partners work together to share experience & resources
and it is impractical to determine which partner performed
or committed a breach. In such J.V. they generally share
Profits, Risks & Liabilities, by forming a Legal entity.
In Non Integrated J.V.
The J.V. Partners have well defined roles . Here despite their
joint several liability to the Employer, the partners may
retain rights of recovery against each other, in case of
default by partner, through Terms & Conditions in MOU.

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 Types of Joint Venture Agreements
• In addition to sharing risk, J.V. contracting allows them to
combine skills, technology & resources and increase
their bidding power & economies of Scale.
• J.Vs. can assist expansion into new businesses and
Markets with local partner to meet compliance with local
prequalification rules.
• Sometimes J.V.s can result into price preference or tax
advantage over the earned profits. In certain Contract
models ( Global or National) higher level of Risk can be
managed, by coming together.

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 Structure of J.V. Agreements
• A well structured J.V. shall cover following:
 Purpose of the J.V.
Management control over J.V.
Resources each partner will bring in.
How Profit or Losses will be shared.
Scope & Role of each partner.
How risks & liabilities will be shared.
How disputes if any will be resolved.
How the Venture will be funded.

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 Formats of J.V. Partnership
 It can be Limited Liability Partnership or
 It can also be only Project specific, less formal
unincorporated partnership.
They are easy to set up and less expensive
They are also simple to terminate when decided
Each partner retains control over his resources
and maintain privacy of accounting.
Negative Aspects of this arrangement is that the
liability of each partner is unlimited unless an LLP
is created.
The funding & Performance bond or the Parent
Company guarantees, can also be an issue.
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 Types of Joint Venture Agreements
Incorporated Entity
In complex longer duration projects, a separate legal entity
is created with clear Management structure & financial
integrity . The assets are held in the name of J.V. entity with
financing prospects.
Unincorporated J.V.
• These are utilized for very joint term projects where
each partner’s role is clear.
• No formal partnership or company structure is created &
each partner is responsible for well defined activities.
• There will be no sharing of profit and each Partner
manages, his share of work and likely profits.
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 Types of Joint Venture Agreements

Unincorporated J.V. ( Cont.)

• Each partner can compliment the other’s skills and one
can be doing designing and other construction.
• But absence of unified management structure can lead
to disputes and difficulties.
• There may be Limitations in obtaining access to financing
& performance security.

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 Types of Joint Venture Agreements
Choice of Partnership Structure
The choice of structure will depend on following :
• The commercial objective of the J.V. – one time short term
profit or long term association.
• The tax treatment of the association by the Govt. in
particular country.
• The Liability & limits to be agreed will decide if a Loose L.L.P.
or Corporate entity is needed.
• The Ownership terms of Intellectual property Rights of both
the parties, need to be addressed.
• Ability to access funding, will be enhanced in case of
Corporate Structure.
• If Scope of Work in J.V. are clear & separate then non
integrated arrangement might be ideal.
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 Legal Framework for J.V.Projects
• The ICA Law ( Indian Contract Act) permits formation of
Joint Venture based Contract, since more than two
parties can enter into Contract in our legal framework.
• The Clauses 42 to 45 of ICA deal with Joint Liabilities of
the parties when two or more persons make joint
promises.
• Standard EPC Contract Models like those issued by FIDIC/
JCT/ NEC, Govt. Dept. also make provisions for Joint
Liabilities of the Parties in Contract.
• Main provision under Law or Standard Contract expects
each party to perform its promise and be jointly liable for
overall performance.
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 Legal Framework for J.V.Projects ( Cont.)
• In case of failure of any one party to perform, other
partners are held responsible, for completing the total
promised performance.
• Normally a Lead member of the Consortium is made the
leader of Consortium to receive all the Communications
& notices from the Employer , to interact with them.
• The Joint Venture partners can have their own M.O.U. or
agreement about the Joint Venture arrangement, as per
choice of mutually agreed terms and condition.
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