I was recently asked by a client whether it is better to undertake a large piece of work in concert with other suppliers as part of a Joint Venture or a Consortium.

I think that the client understood that, as in many things, there is not one simple answer. However to reply “It depends” seemed rather unhelpful at the time.

In this particular case the ultimate client was a large public transport business that was looking to place a multi-million pound contract, which would take a number of years to deliver. The contract required the design, construction, testing and maintenance of a large infrastructure system. It is not unusual in these circumstances for a number of smaller specialist companies to come together to undertake parts of the work. But of course since the end client wanted to have a turn-key solution all the risk of design, build and testing would be born by the delivering group.

The key issues that I discussed with my client all revolved around risk. However, at the same time as thinking how my client may want to mitigate his risk, we also have to think what could be acceptable to all other members of the delivering group, and also what would be acceptable to the end user?

All of a sudden, if we are nor careful, we find ourselves having multi-layered negotiation and potentially wasting a lost of time and getting nowhere in the process. It would become a mini United Nations.

To speed things up I suggest that before starting any negotiations that the suppliers need to select one of their number who will be the lead negotiator with the end user. That person’s job is to provide a portal through which information passes between the end customer and the delivering group.

The key questions that need to be asked of the end customer are:

  • What do you require technically and operationally from the delivering group i.e. what is the project scope and deliverables?
  • What is your budget and timescale?
  • What sort of contractual arrangement works best for you under these circumstances? i,e, what is the legal and financial form that you seek from your supplier body

Once the answers to these questions are clear the delivering group can then get talking together to see if they can satisfy the user’s requirements. From that conversation will emerge an understanding of the risk that each party will need to bear in order to be part of the delivering group.

The main lesson to be learned under these circumstances is that when there is a large and dominant customer to deal with, unless your products/services are so special as to enable you to negotiate on equal terms, then unless you are prepared to compromise then it may be better to just step aside.

Simon Bruce

Author Simon Bruce

Simon qualified as a Chartered accountant with BDO London in 1982 and then began a career taking in banking, manufacturing and international trading working in UK, Europe and Australia. He has worked with publicly quoted companies, family companies and start-ups.

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