Commercial solicitor Sam Lyon explains how collaboration and partnering work in practice.
‘Collaboration’ and ‘partnering’ are two of the current buzz-words in industry, none more so than the nuclear and renewable energy supply chains. Often used, but how do businesses put these phrases into practice?
The classic legal structure when two or more businesses work together (such as to perform a contract for a third party) is to form a ‘joint venture company (‘JVC’), with each business holding shares in it and putting a shareholders’ agreement into place dealing with things like how the JVC will be run and profits split. Nuclear Management Partners is an example of a JVC. The advantages are that a JVC can contract in its own right (e.g. with the customer), own assets and be sued (which is actually a good thing, as in most cases this limits the liability of the businesses which own the JVC).
An alternative structure is for the businesses to form a legal partnership. A partnership agreement is drawn up, which deals with similar issues to the shareholders’ agreement. People often associate legal partnerships with professional firms, such as accountants and solicitors, but they can be a particularly attractive option where the collaborating businesses wish to keep financial details from the public domain.
Both JVCs and legal partnerships can be time-consuming and costly to put into place properly. Perhaps for this reason, an increasing number of collaborating businesses are choosing to work together on a purely contractual basis. This involves entering into a contract with each other (sometimes called a ‘collaboration’ or ‘co-operation’ agreement). The contract deals with issues such as the purpose of the collaboration, the obligations of the parties and splitting of profits (and liabilities).
One downside is that customers can be unwilling to have to contract and deal separately with each of the collaborating businesses, as opposed to just a single JVC or legal partnership. To get around this, the contractual structure can be altered. All collaborating businesses could have input into a tender, but then with only one of the collaborating businesses (‘Business X’) contracting directly with the customer. The other businesses then become subcontractors to Business X. To protect a subcontracting business’ commercial interests, agreements can be entered into to deal with how the subcontracting relationship will work if the bid is successful.
Choosing the correct legal structure is one of the most important considerations to take into account when working in collaboration with other businesses .