In July 2011, the Homes and Communities Agency (HCA) published a list of 146 successful bidders who, it is envisaged, will deliver 80,000 new homes by 2015 under the Affordable Homes programme (AHP).
DMH Stallard is engaged in helping successful bidders to understand the key issues involved in AHP. For example, this week, our team is looking at the requirement for all organisations delivering homes under the programme to be qualified as HCA Investment Partners, and identifying the advantages of setting up either a joint venture company (JV) or a special purpose vehicle (SPV).
Only qualified Investment Partners can deliver programmes under the AHP, and so any successful bidders who have not already applied for, and received, Investment Partner status need to complete the qualification questionnaire. Investment Partner status must be obtained before any payment under a framework delivery agreement will be made.
The questionnaire and guidance on how to complete it can be downloaded from the HCA website. The questionnaire is split into four sections:
- Sections 1 & 2 - Organisational Information and Good Standing;
- Section 3 - Financial Information; and
- Section 4 - Technical Capacity to meet the HCA’s Design and Quality Standards (April 2007).
Applications may be made by a single entity, a consortium, a JV or an SPV. Section 1 of the questionnaire requires the applicant to give all the relevant details of the organisation.
There are significant advantages to setting up either a JV or an SPV for the purpose of providing affordable homes under the programme.
A joint venture company can be set up to pool the resources of two or more businesses for a particular project. This allows the businesses involved to share expertise and knowledge, in turn facilitating greater productivity, capacity and ultimately profits. A JV will also allow the parties to share not only the costs but also the risks involved in the project. The JV model is very flexible, and provided that the parties can clearly set out their objectives and obligations to each other from the outset, it can be an extremely attractive option. We recommend that the parties to a JV enter into a shareholders’ agreement upon formation.
A JV for specific or shorter term projects is often referred to as an “SPV”, which can, like a JV, involve more than one business entity but may simply be a wholly owned subsidiary company . The SPV will usually be a limited company and is set up to fulfil a specific objective. The major advantage of a company SPV is that it is an effective way of isolating, (or “ring-fencing”), the risk involved in a particular project. An SPV will be a new legal entity, free from any pre-existing obligations and debts, and (subject to group arrangements) it will be treated as separate to the parties that set it up for accountancy, tax and insolvency purposes. In this way, the parties who set up the SPV may ensure that any risk involved in the project will not affect any of their assets which are not transferred to the SPV.