1. Options - working collaboratively in competitive tendering situations Robin Fallas, MacRoberts LLP

2. Benefits of collaborative approach Procurement rules context DWP context Some Initial Considerations Collaboration options and legal issues that attach  Contractual framework  Contractual framework with steering group  Jointly controlled entity

3. Benefits of collaborative approach Shared costs Access to broader competencies Better meet DWP expectations?  Increased chances of success

4. Potential drawbacks with collaborative approach Unfamiliarity in market? Complexity / commercial clarity  Potential difficulty in explaining approach Requirement for legal advice/clarity on legal structures Cost Alignment of organisations Potential issues with IPR / payments etc if unclear Reliance on others

5. Key considerations for success Maximise your chances of winning by:  Understand requirements;  Ensuring that your choice of collaboration partners reflects the Contracting Authority’s (CA’s) requirements;  Ensuring that the form of collaboration reflects the CA’s requirements.

6. Procurement rules context Public Contracts (Scotland) Regulations 2006 Regulation 28: ““consortium” means two or more persons, at least one of whom is an economic operator, acting jointly for the purpose of being awarded a public contract”  CA cannot treat bidder as ineligible on grounds that no legal entity formed (Regulation 28(2))  CA may require, where justified, a consortium to form a legal entity before entering into a contract (Regulation 28(3))

7. Procurement rules context Information as to economic and financial standing (Regulation 24):  “Where appropriate an economic operator may rely on the capacities of other members in the group regardless of the legal nature of the link between the economic operator and other entities” (Regulation 24(4)(a)) Information as to technical or professional ability (Regulation 25)  Regulation 25(3) contains a similar provision reflecting 24(4)

8. Procurement rules context CA may request a statement of any proportion of the contract which the services provider intends to sub- contract to another person (Reg 25(k)) CA may require indication of part of tender to be subcontracted and identity of subcontractor (Reg 45)

9. Procurement rules context Collaborative form/structure  must comply with Contract Notice and Contract Document requirements  must meet pre-qualification requirements  should maximise chances of success by reference to CA’s requirements and evaluation

10. Procurement rules context Pre-procurement consideration Contract Notice Pre-qualification Invitation to Tender Bid submission Evaluation and award

11. DWP Context Partnership between public, private and third sectors Integration with community strategies Multi-client contracts Stronger more consistent base of top-tier providers Fewer larger, longer contracts – Prime contractor model Special purpose vehicle or consortium

12. DWP Context Contract Notice for Phase 1 Flexible New Deal:  Parent guarantees, performance bonds (III.1.1);  No specific legal form but each service provider to be jointly and severally liable (III.1.3);  Restricted procedure with assessment of capacity and capability at pre-qualification (IV.1);  Most economically advantageous tender (IV.2).

13. Legal Form Options Consortium /contractual framework Consortium / contractual framework with steering group Jointly controlled legal entity:  Company Ltd by shares  LLP  Company Ltd by guarantee » Charity » CIC

14. Some Initial Considerations Consider partners / structure in advance Any restrictions on the model you can use? Who are suitable partners? Compatible? Contract specifications (likely to be)? Risks/liabilities likely in delivering the contract Risks in different approaches to collaboration Duration / exit strategy? Approach to management decisions? Ensure legal documentation covers off risk / sets out clear structure Consider TUPE issues as relevant

15. Consortium - Contractual ? [DWP] Lead Partner ??

16. Consortium - Contractual Unincorporated; Contractual rights and obligations amongst members including:  Duration, rights and duties, scope of project (flexible), sharing of assets (as appropriate), financing, restrictions on parties, rights of parties to participate in profits, exit provisions; Normally declaration that not a legal partnership Need for one party to enter into contracts (guarantees etc to be provided by others?) Profits generally accrue separately to parties (each taxed according to its structure) May take form of prime/sub-contractor model

17. Consortium – Contractual with Joint Steering Group ? [DWP] Lead Partner ?? Joint Steering Group

18. Consortium - Contractual with steering group As previous but with steering group as forum for decision making Higher level of collaboration Inclusion of provisions – establishment of joint steering group - status and form Inclusion of provisions – decision making between partners and joint steering group

19. Contractual Frameworks Advantages  May be easier to set-up  Independent decision making for each party  Avoids additional formalities  Costs  Exit  Flexibility Disadvantages  Less “joint” decision making  Potential complications with third parties  Potential unlimited liabilities (reck /neg etc)  Risk for lead party  Potential distortions in decision-taking

20. Jointly Controlled Entity ? [DWP] JCE ???

21. Jointly Controlled Entity Dedicated corporate body Can facilitate clearer legal framework with ability to adapt Can allow for clear mechanism for payments/recycling of returns Limited liability (though bear in mind parent guarantee and joint/several liability) Can assist in governance / management of contract (higher degree of joint decision making) Board – can result in high degree of joint management of risk Assets and liabilities pooled in single venture

22. Jointly Controlled Entity Advantages  Closer relationship  More robust governance  Clear decision making  Limited liability  Separate entity - employ/hold property;  Financial flexibility  Minimal disruption if change in partners Disadvantages  Regulation  “Limited”?  Set-up costs / audit  Administration  Reporting/Minuting  Separate Accounts  Company Law  Harder to disengage  Separate Resources

23. Forms of Jointly Controlled Entity Profit making/distributing  Co Limited by shares  LLP Non profit-making  Co Limited by guarantee CIC / Charity considerations Option to carry out services or to sub- contract

24. Co Ltd by shares Parties are members Articles contain detail on investment / decision taking / shares Can realise stake through shares or payout of surplus assets Shareholder Agreement setting out detail Care with conflicts Companies Acts apply Tax considerations on set-up

25. LLP Where two or more members wish to carry on business with a view to profit Clear distinct legal entity Parties are members/designated members Members free to regulate decision making Members taxed according to their tax status Members ultimately responsible for acts/omissions Flexibility but no readily transferrable stake Tax considerations on set-up

26. Co Ltd by guarantee Suitable where no intent to derive financial return Clear distinct legal entity Members are parties Built in right to representation Prohibition on distribution of profits Liability of members limited Companies Acts apply

27. How to choose? What does DWP want? What works for you/partners?  Clarity on decision making  Dealing with risk  Returns mechanism  Exit strategy  Flexibility  Resources

28. Contractual Frameworks – Key considerations Clear objectives Duration Responsibilities  lead?  service levels?  Timetable? Decision-making process Point(s) of contact Joint Steering Group Contribution of funds/assets Sharing of risk Profit sharing / bearing of costs Monitoring and review Termination Dispute Resolution

29. Jointly Controlled Entity – Key Considerations Where CLS:  Share capital  Capital  Voting  Further issue / transfer of shares  Meetings  Board composition  Remuneration  Powers/ proceedings Shareholders/Members Agreement:  Resources  Property  Borrowing  Business Plan  Reserved matters  Disputes  Confidentiality  Terms of main contract  Terms to be included in sub- contract

30. Conclusions Form depends on:  what DWP wants  your organisation’s ethos  approach to risk  approach to resources  approach to decision making  approach to profit (recycling of)

31. Questions?