What is a consortium?

To achieve their economic goals, independent organizations and enterprises often resort to joining forces. This helps to successfully fight for receiving production orders and effectively execute them. One form of such integration is a consortium.

Consortium: Definition and Characteristics

A consortium is understood as a temporary association of several economic entities created by banks and enterprises for the implementation of any major projects or financial transactions.

Public and private entities, as well as entire states, can become consortium members. All of them remain fully independent subjects of economic activity. Very often, banks that start lending to large projects join in consortia. In the field of industry, enterprises jointly undertaking serious military orders often resort to the creation of a consortium.

When merged into a consortium, its members draw up an agreement where they establish each share in both costs and profits. Forms of participation in the implementation of a project are also determined. The head of the consortium is selected from among the participants in the combined structure.

Recently, this form of association has become widespread in the construction industry, where unique and large-scale engineering projects arise and the level of competition is high. The creation of a construction consortium makes it possible to increase the reliability and economic efficiency of work.

At the beginning of the last century, consortia were mostly agreements between banks and were created primarily for financial transactions on the domestic and international markets. Only by the middle of the 20th century did the influence of the consortiums spread to large industrial and scientific-technical projects. With the participation of consortia, for example, many nuclear power plants were built. Modern consortia are often created with the aim of conducting complex research work.

Industries where the importance of consortia is great:

• defense;

• construction;

• space and aviation;

• telecommunications and communications;

• Computer techologies;

• biotechnology.

Types of Consortia

Three types of consortia can be distinguished according to the degree of integration of its participants. In the first, a large object is divided into a number of independent modules, where work is performed by each of the contractors independently. This is where the potentials of independent partners come together. One can lay railway tracks, another equips electric facilities, the third is engaged in laying communication lines. The degree of integration in consortia of this type is minimal and usually limited by the formation of supervisory structures.

Complex objects that are not amenable to division require enhanced integration and a higher degree of cooperation. The participants of the second type consortium usually together prepare an application for participation in the tender, jointly provide bank guarantees and insurance for the project, bear general responsibility for violation of the deadlines and for defects in the performance of construction tasks. Revenues between members of the association are distributed depending on the volume of work performed. This type of consortium is more characteristic of Russian reality.

The third type of consortium is most often used in countries with developed market economies. For the duration of the project, its participants combine their equipment, vehicles, working capital and labor resources. This approach guarantees maximum efficiency and intensity of using the potential of companies. Such a union in many respects resembles the creation of a temporary unified company with high competitiveness and profitability.

Consortium Activities

The basis for the consortium is an agreement between a number of organizations, which may include enterprises, banking institutions, research centers, and companies. Having entered into an alliance, members of such an association can carry out major financial operations for the implementation of scientific and industrial projects, for the placement of securities. Consortia contribute to the merging of industrial and banking capital, although participants in the combined structures retain legal and economic independence entirely. The main goal of creating a consortium is to gain competitive advantages over other market participants.

The most common forms of consortia are:

• joint stock companies;

• simple partnerships;

• limited partnerships;

• associations, unions.

Associations can be either temporary or permanent. Temporary consortium is more common; it allows you to place bonds and carry out short-term transactions without unnecessary organizational efforts and costs. Permanent consortia work with securities of large joint-stock companies and can participate in large-scale investment projects.

In many cases, the consortium is headed by a large banking structure with a wide network of branches through which it is easy to distribute securities issued by the consortium. Each member of the consortium receives the right to commission, the amount of which depends on the degree of participation in the production and financial activities of the association.

Both large and small enterprises can become consortium members. Very often, such subjects of economic activity have interesting entrepreneurial ideas, but do not have the ability to bring them to life. The consortium just becomes the structure where you can get access to personnel, production capacities, financial resources. It is when united in a consortium that projects carrying high profitability are possible.

Consortium Management and Responsibility Distribution

The members of the consortium choose from among its members a leader who coordinates the activities of the association and represents its interests before other participants in economic activity. The head acts strictly within the authority given to him, but responsibility for obligations lies with all participants in the consortium, taking into account their contribution to the total supply. Various liability options are possible, including joint and several liability.

Each of the members of the association presents to the management its proposals on the activities of the consortium, from which a common system of supplies, work or services is composed. If the consortium participants carry out a certain part of the work, then they assume the share of financial risk associated with it.

Contracts concluded between consortium participants may provide for joint investments and other forms of cooperation. Relations in this case can be formalized not by one agreement, but by a number of agreements of various kinds. The agreement may not contain specific conditions essential for future transactions of the consortium, but in this case, such a document has legal force.