When consultants have asked me whether I can point them to a “standard” joint venture agreement, I’ve always had to say no. Joint venture agreements are typically drafted by solicitors for each project, and I’m not aware of any pro forma contract published by Standards Australia or consultant representative bodies.

But in 2017, the International Federation of Consulting Engineers (FIDIC) issued a new Model Joint Venture Agreement. So now engineers, as well as other consultants, have a place to start when contemplating the key issues that need to be negotiated and formalised before entering into a joint venture.

(We’re talking about unincorporated joint ventures throughout this article. The alternative, an incorporated joint venture where the consultants set up a new company to manage the joint venture, requires additional legal formalities that are not covered by the FIDIC agreement.)

 

Some of the key matters covered in the FIDIC agreement are:

• Setting the tone – Decisions must be made “in good faith” and “in the spirit of mutual trust and cooperation” (clause 2.3).

• Contract relations – The Model Joint Venture Agreement is the contract between the two or more consultants (called “Members”) who are forming the joint venture, governing relations between the Members. The Members’ obligations to their mutual Client are set out in a separate Services Agreement (clause 1.1.18).

• Operating structure – Each Member provides a Member Representative to sit on the Steering Committee, which manages all decision making. One of the Member Representatives becomes the Project Director, who chairs the Steering Committee (with a casting vote) and becomes the liaison for the Client (clauses 7.1, 7.3, 7.5 and 7.9).

• Liability – The Members are jointly and severally liable to the Client. (This is the usual position for unincorporated joint ventures, and it means that the Client can sue any one (or more) of the Members for negligence or other breach, regardless of which Member was actually responsible for the breach.) The Members then negotiate between themselves to allocate liability and, if that fails, the Steering Committee decides (clauses 14.1 and 14.3).

• Purpose – The joint venture must be used “solely” for the purpose of preparing a proposal and performing the stipulated services (clause 2.1), which reduces the risk of liability for unrelated work performed by the other Members.

• Documents and copyright – Each Member retains copyright in their own work, and gives the other Members a licence to use it (clause 21.1), unless the Services Agreement provides something different (clause 21.6). All project files are made available to all Members and bear the name of the joint venture (clauses 8.3 and 8.1).

• Work and Finances – The specific services allocated to each Member need to be written into Appendix 3 (clause 4.2). Fees are paid into a specified project bank account, including any working capital that the Members must contribute (clauses 18.3-18.4). The contract provides for an annual profit and loss statement and annual audit, with financial disputes decided by the auditors (clause 17).

• Default – If one Member commits a “material” breach of the agreement, the remaining Members can reassign the work amongst themselves and adjust fees and losses accordingly (clause 12).

 

The Model Joint Venture agreement can be a helpful guide to some common issues in unincorporated joint ventures, especially for consultants with limited experience of this structure. Ideally it would be used in conjunction with legal advice on its suitability for each individual joint venture. For example, you may wish to consider listing certain crucial decisions that require unanimous approval by the Steering Committee (the default is by majority – clause 7.3); consider stipulating which sub-consultants will be engaged and by whom (and how the cost will be allocated); and adding a requirement for Members to renew their professional indemnity insurance for (say) 7 years after completion (clause 15.2).

Remember to consult your professional indemnity insurance broker before entering a joint venture, as some policies provide limited or no cover for joint ventures, and others require prior notification of each joint venture.

The FIDIC Model Joint Venture (Consortium) Agreement Between Consultants is available for purchase on the FIDIC website.

For more information on working jointly, see our Joint Ventures Practice Guide (available to insurance clients of Planned Cover with a login) or you can purchase a recording of our November 2017 webinar, Working Jointly – Responsibilities and Risks.

 

Wendy Poulton

Risk Manager

informed