parts of the performance for themselves or in pushing through certain price
expectations. Coordinating the time the services are to be provided and the coordi-
nation of the pricing (formulation of an overall proposal price for different price
strategies amongst the individual partners) can also lead to difficulties. This means
that know-how, image/reputation, credit rating, soundness, the minimization of
interface problems and the lowest possible conflict potential (corporate cultures,
compatibility of the product, price, distribution and other strategies) are important
selection criteria for the members of the consortium.
The consortium (without a general contractor) becomes a legal entity towards
third parties (external company) so that the customer can raise a warranty, compen-
sation or other claim against
every
individual member of the consortium based on
the principle of joint and several liability. For the customer, this has the benefit of
distributing the basis for liability. Given that it takes over the joint and several
Project Cooperation
381
liability for the performance of all the contractual obligations towards the customer,
the customer has much better security than in the case of a general contractor or a
component purchase. The joint and several liability means that the customer can
initially approach any of the consortium partners in order to raise their claims,
e.g. regarding warranty.
From the perspective of a project
customer,
the benefit of a consortium project
cooperation lies in the distribution of the supplier’s basis for liability.
A disadvantage for the customer may be that the consortium has more
negotiating power than an individual company. A consortium is generally more
able to exercise negotiation pressure than an individual supplier in the position of a
component supplier or general contractor. If a large number of suppliers is included
in a consortium, there may also be a reduced intensity of competition, as there are
fewer competing proposals. Compared to the issuing of individual orders (compo-
nent purchase), the latter is generally prima facie more cost-effective for customers
with adequate know-how than placing the order with a consortium.
5.3
General Contractor with Internal Consortium
Today, a common form of supplier coalition for larger and international projects is
the internal consortium with a general contractor. Consortia may appear as “open”
or internal (“silent”, “hidden”) consortia. Both types are not distinguished by the
fact of whether the customer is or is not aware of the existence of a consortium.
Admittedly, the level of knowledge of the composition and function of the coalition
is greater for an open consortium than for an internal consortium. However, for the
latter, it is customary that the customer is aware of the companies involved in the
consortium, that they are informed of changes and that they may potentially even
influence the composition. Rather, the differences lie in the legal structure and
consequences.
In the case of an internal consortium (cf. the diagram in Fig.
5
), the formal
external relationship is that of a general contractor. One supplier (the
internal
consortium manager) concludes an independent contract with the customer,
i.e. the project customer, in the
external
relationship. As a result, they alone are
initially responsible for the overall performance towards the customer. The cus-
tomer concludes a project-based contract with a general contractor.
In the
internal
relationship between the cooperation partners, who cluster around
the general contractor, or are involved by them, the general contractor concludes a
consortium contract with additional suppliers, in which the latter take on the risks
from the customer contract. In this case the liability for the overall performance is
divided amongst the consortium partners in the internal relationship, resulting in a
corresponding risk diversification. Regardless of this, the general contractor can
enter into contracts with subcontractors, as is the case for every member of the
internal consortium.
The internal consortium differs from a pure general contractor type in the
structure of the internal relationship (supplier coalition instead of subcontractor
382
B. Gu¨nter
relationships) and from an open consortium in the structure of the external relation-
ship (
one
contact for liability and warranty issues instead of several contacts for the
customer).
The primary benefit of the internal consortium is that the negotiation and
responsibility is centralized for the customer, but that an—internal—risk diversifi-
cation is achieved amongst the suppliers.
5.4
Syndicate
A syndicate also involves the amalgamation of various suppliers in order to provide
a certain service for a temporary project period. While a consortium is similar to a
supply association of independent partners and the performance takes place inde-
pendently in the individual companies, a syndicate takes the place of the actual
provider of the project. In contrast to a consortium, a syndicate has an independent
joint asset, which the partners provide (for example) in the form of machines. The
syndicate takes on the role of the employer and assigns orders, such as for the
procurement of construction material. A syndicate renders account independently.
The partners involved distribute the profit and loss following the conclusion of the
project. It has features similar to a temporary company that acts independently and
as a separate entity. Project cooperation in the form of a syndicate primarily takes
place in the construction industry.
Principal
External and
overall contract
Internal and
individual contracts
Interface
problems
M
CM
GC = General contractor
CM = Consortium manager
M = Member of the consortium
GC
=
M
M
M
Fig. 5
The hidden consortium (VDI
1991
, p. 38)
Project Cooperation
383
5.5
Decision-Making Criteria for Selecting a Form of Cooperation
The decision on one of the organizational forms described can take place based on
different criteria from the perspective of the various parties involved. A few of the
most important criteria are:
• Possible customer wishes or requirements
• Targeted scope of tasks or supplies and share of earnings
• Know-how and capacities (capacity objectives)
• Development of certain markets/market segments, potentially with the aid of
cooperation
• Profiling and reference
• Consultation and cooperation in the supplier coalition and
• Willingness to take risks
The key benefits and disadvantages of a general contractor or a consortium and
the most important decision-making criteria between the two forms are compared in
Table
12
.
Aside from that, the issue of the time at which a project cooperation is to be
contractually established is also important for the structure and the course of a
project cooperation in the organizational forms mentioned above.
The
early
establishment of supplier coalitions takes place in the inquiry or
proposal (preparation) phase for projects. A
late
commitment can be referred to,
Table 12
Comparison of a general contractor and consortium (Backhaus and Voeth
2010
, p. 355)
General contractor
Consortium
Benefits for the
customer
• Only one negotiation partner
• Overall risk under one roof
• Performance shares can be
negotiated directly
• Liability base is enlarged
Benefits for the
supplier
• Internal performance can be freely
determined for a general contractor
• Free selection of subcontractors
• Reference benefit
• Share of risk falls for all suppliers
• Direct customer contact, not just
for the general contractor, but for
all members of the consortium
(reference)
• Financing support may be able to
be utilized, if direct customer
contact is provided as a requirement
Disadvantages
for the
customer
• Potentially low liability base for the
supplier
• If internal know-how is great,
services, which may be able to be
provided internally, need to be
surrendered
• Several negotiating partners
• Must be able to assess interface
problems
Disadvantages
for the supplier
• If the delivery conditions cannot be
transferred
• Higher risk for the general
contractor
• Higher costs due to coordination
requirements
• Direct liability of all members of
the consortium
384
B. Gu¨nter
if a supplier (contractor, general contractor, main contractor) only contractually
commits cooperation partners
after
receipt of the order. A cooperation decision and
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