Consortium agreements: Key to a happy ‘marriage’

To meet the requirements of government, social investors often form a consortium to make a joint bidding for PPP/concession projects. It is common to participate as a consortium in PPP/concession projects that require large investments and long durations. Unlike other traditional consortium bids to become contractors only, after the PPP (public-private partnership) project is awarded, the members of the consortium often need to establish a project company as shareholders and co-operate for more than 10 years, or even decades.

In spite of such a long period of co-operation, during the bidding phase of the project, the government often only attaches a rough-and-ready consortium agreement template to the procurement documents. The consortium members often hastily sign the consortium agreement under tight time constraints in accordance with the template provided in the procurement documents, in order to get the project as soon as possible. However, after winning the bid, the parties perhaps find they cannot reach consensus on some key issues and then come to a deadlock. Such problems are becoming increasingly prominent.

The authors recently encountered such problems in an expressway PPP project with an investment of more than RMB40 billion (US$5.82 billion) and a co-operation period of up to 33 years. In the bidding stage, the consortium members signed the consortium agreement hastily, based on the template provided in the procurement documents. After winning the project, the project company could not be established because the parties could not agree on some core issues.

Wang Jihong is a partner and Li Xiaodan is an associate at Zhong Lun Law Firm