This article looks at the types of legal model most commonly used in consortium working, and the advantages and challenges associated with each form.

Creating a new independent body

One option is for the consortium to be formally constituted as an independent legal entity. This new entity is effectively owned by the various partner organisations, and can bid for and enter into contracts in its own right.

There are a variety of different operating models that can be used, but the most common is to create a company limited by guarantee, which may itself also be a charity. The individual partners participating in the consortium will be the members of the new company.

There are many advantages to creating an independent legal entity. Creating a company limited by guarantee will enable the consortium to manage risk, as the liability for the contract will be passed to the new entity, limiting the liability of the individual members to a nominal sum. As each partner organisation becomes a member of the new entity, participants may feel that the control and ownership of the project is on an equal footing as no one partner has overall control.

The arrangement also separates out the activities of the consortium from the other activity carried out by the individual partners, and makes it easier to create a new identity and brand for the partnership. However it should also be considered that at the start of the relationship the new entity will have no prior reputation or financial history to trade on, and there is therefore a chance that it may be perceived by commissioners as more of a risk than an organisation with an established brand and reputation.

Cost and resources are significant factors to take into account if you are considering this type of model. Creating a separate legal entity will be more costly than other arrangements, and will require more time and input from all partners. A new governing document will have to be drawn up, and the new company must be registered with Companies House (and potentially the Charity Commission). There will also be ongoing legal and reporting requirements for the new entity, for example the filing of annual returns and accounts, all of which will require input from each of the partners on a regular basis. Therefore if the project is small, or is only intended to run for a short period of time, this particular arrangement may not be the most cost effective option.

Contractual consortium with a lead organisation

Some organisations may prefer to enter into a contractual relationship where one organisation is designated as a lead body. The lead body is then accountable for managing the project and the various members of the consortium. This type of consortium has no separate legal status, and so it is the lead organisation that holds the formal agreement with the funder and so assumes the risk. The lead organisation will bid for the contract on behalf of the members of the consortium, and will be responsible for the overall management of the activity. Depending on the nature of the contract, the lead organisation may deliver parts of the contract itself, and subcontract other parts to the other members.

An advantage of this type of arrangement is that there may be a perception of less risk for funders, as the lead organisation will have an established reputation. However, it can bedifficult to establish a clear identity and brand for the consortium. This type of arrangement also requires a high degree of trust between the members, and an acceptance that one organisation, as lead, will be taking on a higher degree of responsibility and control. If there is no obvious and natural choice for who should act as the lead body, consideration will have to be given as to which organisation has the capacity and resources to lead the contract.

Subcontracting

An organisation may decide to make its own bid for a contract, and enter into the contract with the commissioner. The organisation can then sub-contract parts of the project to other organisations who are in a position to provide the specific skills and resources that are required.

Consortium agreement

Whichever form of consortium is chosen, the legal rights and obligations of each member should be set out in a consortium agreement, also called a joint working agreement. The agreement should clearly outline the scope of what the consortium wishes to achieve, and identify the various members. The rights of duties of the partners should be clearly defined, and how risks and liabilities are to be apportioned if necessary. If there is to be a lead organisation, its role and powers should be set out. It is also vital to set out the duration of the agreement, and give thought to how and when an individual partner may exit from the agreement before the end of the term should they wish to do so.