Once the consortium is formed, the next requirement is for the sponsors to put suitable bidding arrangements in place. These will normally take the form of a Letter of Intent or Memorandum of Understanding that will be entered into by the sponsors, which will set out their intention to bid together, normally on an exclusive basis. These agreements may not be binding. However, a more formal and binding agreement, known as a “consortium agreement”, may be agreed to by the sponsors.
The consortium agreement and the other associated agreements referred to above will set out how the consortium will operate, together with the rights and responsibilities of its members. Each member’s responsibility for carrying out and meeting/sharing the costs of bid development will be documented, as well as how parties will take decisions and work collaboratively. Specifically, the procedures and decision-making mechanisms to ensure proper governance of the consortium will be documented.
The importance of the Consortium Agreement should not be underestimated. This agreement will form the basis of the shareholder’s agreement. It will influence the private party’s project structure and governance, and the allocation and responsibility for the management of project risks between the consortium parties. It is customary too that the sponsors will enter into a confidentiality agreement, meaning that they will agree to keep each other’s commercial information confidential at all times.
