The FIDIC Joint Venture Agreement 1st Edition (1992) and 2nd Edition (2017)

by | 15. March 2018 | Commercial Law

The FIDIC JOINT VENTURE (CONSORTIUM) AGREEMENT, 1st edition 1992  was prepared essentially to be used for the association between two or more Consultants, when:

  • the association is for marketing and/or performing the Services required for a specific project, rather than for a more permanent type of arrangement; and
  • one party will be an international firm and one may well be a local firm in the country of the Project.

The FIDIC JOINT VENTURE (CONSORTIUM) AGREEMENT includes Conditions of Agreements and Schedules (to be completed by the Members of the JV). The Conditions of Agreement consist of the following text

This Agreement

is made the _________ day of _________ , 20 _________

Between

(name and address of first Member) _________ _________ _________

(hereinafter called “ _________ “)

And

(name and address of second Member) _________ _________ _________

(hereinafter called “ _________”).

Whereas

(name of the Client, and a statement of its intention to proceed with a project, to inviteproposals, and to appoint a Consultant to provide professional services for it, or similar particulars) _________

And whereas

(names of the Members) _________ _________ _________ (hereinafter called … “the Members”) have agreed to form a joint venture to provide thesaid professional engineering services,

Now it is hereby agreed as follows:

…

followed by  21 clauses:

  1. DEFINITIONS AND INTERPRETATION
    1.1 DEFINITIONS
    1.2. INTERPRETATION
    2. JOINT VENTURE
    3. PROPOSAL SUBMISSION
    4. PERFORMANCE OF THE WORK
    5. LANGUAGE AND LAW
    6. EXCLUSIVITY
    7. EXECUTIVE AUTHORITY
    8. DOCUMENTS
    9. PERSONNEL
    10. ASSIGNMENT AND THIRD PARTIES
    11. SEVERABILITY
    12. MEMBER IN DEFAULT
    13. DURATION OF THE AGREEMENT
    14. LIABILITY
    15. INSURANCE
    16. PROMOTIONAL AND PROJECT COSTS, PROFITS, LOSSES AND REMUNERATION
    17. FINANCIAL ADMINISTRATION AND ACCOUNTING
    18. GUARANTEES AND BONDS
    19. ARBITRATION
    20. NOTICES
    21. SOLE AGREEMENT AND VARIATION

A JV is a living organism where the Members remain in principle independent of each another. On the other hand they must have –from the legal point of view as well as in practice- a common aim to be achieved. This aim must be defined. Any activities and contributions of the members are aimed at the achievement of the common aim.

Typically the common aim of a JV is to provide services for a Client. These services are aimed at the achievement of a practical goal. Typically the services involve feasibility studies, design activities or contract management services for the purposes of a specific project.

The financial power and workman power of the Members are typically different. Also the interests of each Member are typically not always the same, also not the effects of any change to the scope of services as well as to the situation of each Member. A marginal change may be a fundamental change at the same time depending on the Member being involved.

The living organism, the JV, must be able to take decisions. The normal legal approach is such that the Members may only take unanimous decisions. This may result in a deadlock, if the interests of the Members are different. Thus, practical reasons (may) require decisions by majority.

The JV cannot act with legal capacity (or with a binding effect to all JV Members) if there is nobody representing it. The normal legal approach is such that the Members shall act jointly on behalf of the JV. The natural result is that unanimity is required. This is not a really practicable approach.

A practical approach can be that the Members (for example in a Policy Committee meeting) take management decisions and convey upon a (third) person the authority to act with legal capacity on behalf of all JV Members (or the JV). The authorised person may have the unlimited power to act on behalf of all JV Members (or the JV) but it shall only do so if so authorized by a management decision.

Whenever the third person acts with legal capacity it will be binding on all JV Members. But failure to have obtained prior approval or decision from the Members (for example in a Policy Committee meeting) will result in breach of contract and make the actor liable for damages.

The advantage of such a straightforward concept is that the JV is manageable and able to take action if necessary. What is required is simply a decision on the majorities which are to be met for any type of decision to be taken.

The current FIDIC JV Agreement suggests to establish an unincorporated association for the purposes of:

  • preparing and submitting the Proposal to the Client;
  • providing any further information the Client may require or negotiating with the Clienton any matters requiring negotiation in connection with the Proposal;
  • entering into the Services Agreement with the Client, if the Proposal is accepted; and
  • performing all the Services to be undertaken for the Project by the Joint Venture under the Services Agreement.

Thus, the JV shall operate for different purposes including the acquisition of services and the performance of services.

From the date of the Agreement until the award of the Services Agreement to the Joint Venture or until this Agreement shall terminate in accordance with its terms, whichever is the earlier, the following matters shall require the unanimous consent of the JV Members:

  • for the purpose of submitting the Proposal, the respective responsibilities and obligations to be undertaken by the Members under the Services Agreement, …;
  • for the purpose of submitting the Proposal, the prices and terms and conditions of payment comprised in the Proposal as applicable to the Joint Venture generally, and to the Members separately, …; and
  • any communication to, or response to communication from, the Client either written ororal and any commitment of any kind to the Client or any other party in connection with the Proposal.

Hence, the principle of unanimity prevails. Majority decisions are not permitted. Decisions on the policies of the Joint Venture shall be vested in a Policy Committee comprising the Representative  of  each  of  the Members.  In the event of there being disagreement between members of the Policy Committee on matters not otherwise prescribed in this Agreement the Chairman shall be entitled to use a casting vote.

It is rather questionable on whether such a JV Agreement reflects modern business requirements where quick decisions and a smooth and flexible performance of services is necessary. At least it will be quite difficult to enforce any decision taken in the Policy Committee because in matters of actions to be taken on behalf of the JV and its Members the unanimous consent of all JV Members and finally the signature of each Member Representative is required. The fact that a Services Manager and a Leading Member will be appointed pretend actionability but in practice it is likely to be missing.

The 2nd Edition FIDIC JOINT VENTURE (CONSORTIUM) AGREEMENT

In February 2017 FIDIC has launched the 2nd Edition of the FIDIC JOINT VENTURE (CONSORTIUM) AGREEMENT.

The new Joint venture Agreement was designed for unincorporated JV, where a JV of firms acts as Consultant under a Services Agreement such as the White Book

The new Joint Venture Agreement assumes that

  • the lowest level of alliance / cooperation is intended;
  • individual Members need to agree the allocation among themselves of the obligations and liabilities within the Joint Venture – however with the proviso that all JV members are usually becoming jointly and serverally liable to the Client (see below).
  • not creating a legal entity having individual legal capacity, but being an agreement between parties to associate for a specific Project in two stages: (1) bdding and (2) performance.

Each JV Member will typically be jointly and severally responsible and liable for the performance of Services under the main Services Agreement with the Client and for any breach of that agreement.

Structure of the JV Ahreement, 2nd Edition:

  • Agreement General Conditions (24)
  • Appendices 1 to 5

1.Particular Conditions – Part A (References/Agreement Data) + Part B (Additional or Amended Clauses) – prevailing on GC

2.Financial Administration Services

3.Allocation of the obligations

4.Financial Policy and Remuneration

5.Steering Committee

6.Project Director

7.Project Manager

8.Cross Guarantee and Indemnity Agreement

9.Code of Conduct

WARNING: the material contained in these notes is a simplified guide to some of the major topics in international and German construction law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the authors cannot accept any responsibility for errors or omissions.