The consortium model is dominating the PFI sector, while a bewildering array of consultants and contractors are rapidly shuffling into alliances to bid for key Olympics roles. But a new report from the RICS questions the logic of this way of working, claiming it is driving a wedge between the client and the individual firms in the consortium

Consortia are not what you thought they were.They are high risk. They form barriers between the client and the firms that carry out the work. And they fail to add value to the production process.

These are the findings from a new report from the university of Reading. It argues that joining consortia carries extra risk in the form of liability for the actions of partners in the consortium.

Another problem is that partners often have distinct goals that conflict with those of their fellow participants.

However, the report says this kind of conflict is not necessarily destructive and can be welcomed as part of a creative process. For example, a QS will be focused on controlling costs while the contractor will be concerned with delivering a building according to specifications. If costs are escalating to the point where cost overruns become inevitable, then the conflict between the QS and the contractor may be used to find a compromise solution.

One of the main concerns brought to light was that firms feel they are being forced into consortia to survive.

One of the main concerns was that firms usually feel they are being forced into consortia to survive

Despite the negative points raised, the report does shed useful light on the different possible structures for consortia (see ‘Understanding the patterns').

Finally, the report suggests there are three types of ‘games' that exist within consortia (see ‘Game on').

The report, Understanding construction consortia: theory, practice and opinions, was carried out by Stephen Gruneberg and Will Hughes from the University of Reading.

To download the full report, click here

What the names mean

The terms used for the various construction syndicates are often used loosely, leading to confusion. Looking at the business context makes the meanings clear:

A consortium is generally defined as an arrangement between several firms in which each firm contributes an equity stake in the form of risk capital or payment in kind to qualify as a member. Remuneration of members may be calculated as a share of the net profits of the consortium.

A joint venture is characterised by a number of firms collaborating on a project, or a number of distinct projects, with a view to sharing the profits. Each firm is paid on the basis of its agreed contribution in kind or in financial terms.

A partnering agreement involves a number of firms, usually including the client, working cooperatively to achieve a given output over one or a number of projects. Remuneration is usually based on contract terms and contribution to the work.

A special purpose vehicle (SPV) is a formal accounting and contractual arrangement set up by one or more firms to undertake a project or a series of projects separate from the accounts of the firm(s) comprising the special purpose vehicle. Thus, not all SPVs are consortia. However, consortia invariably set up SPVs after being selected to carry out specific work, and the members of the consortium become shareholders of the SPV.

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