【Haichuan EPC】What is a consortium bid, what is its purpose, and what considerations are there?

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A consortium bid refers to the situation where two or more legal entities or other organizations form a temporary consortium in order to participate together in a bidding process, submitting bids as one single bidder. A consortium is suitable for large and complex projects, such as those with a huge scale and high technical complexity, or projects where the tenderer requires the EPC approach, with the scope of work including design, procurement, and construction. Since bidders need to possess qualifications in both design and construction, a design+construction consortium is adopted. Such projects often require high levels of capital, technical expertise, and management capabilities from bidders, which individual bidders may find difficult to meet. By forming a consortium, the advantageous resources of each member firm can be combined, enhancing competitiveness and thereby increasing the chances of winning the bid. Joint bidding has the following advantages: (1) Enhancing overall strength. The various entities that make up a consortium each possess advantages in terms of funding, technology, equipment, personnel, and management capabilities. By forming a consortium, these advantages can be combined to create a stronger overall strength, which enables the consortium to meet the high requirements imposed by bidding projects on candidates’ qualifications and experience, thereby increasing the chances of winning the bid. (2) Risks can be shared. Large and complex projects are often accompanied by high risks, such as financial risks, technical risks, and schedule risks. The members of a consortium can, by signing a consortium agreement, define the proportions of risk sharing and distribute the risks among the various member entities, thereby reducing the level of risk faced by any individual entity and preventing any one entity from suffering heavy losses due to the failure of the project. (3) Improve project implementation efficiency. Members of a consortium can divide tasks and collaborate based on their respective areas of expertise, enabling specialized work that improves efficiency, ensures project quality, and accelerates project progress. For projects with elements of regional protection or industry monopolies, a consortium can leverage the strengths of members from different regions and industries to break down such barriers, allowing each member to enter markets that would otherwise be inaccessible, expand their business scope, and gain more opportunities for growth. Finally, it can enhance the competitiveness of small and medium-sized enterprises. Small and medium-sized enterprises are often at a disadvantage compared to larger companies in terms of capital, technology, and brand strength. By forming alliances with other small and medium-sized enterprises or larger firms, they can leverage collective strength to compensate for their shortcomings, enhance their competitiveness in bidding for large-scale projects, and work together to cope with market competition. Having talked about the advantages, does the consortium have no disadvantages? Of course there are. The first issue to address is the division of responsibilities and the allocation of benefits among the consortium members. In consortium projects, the contribution of each member to the project varies. When it comes to the distribution of benefits, the lack of scientific and reasonable criteria or clear prior agreements can lead to an uneven distribution of benefits, resulting in losses for some members and thereby affecting the cooperative relationship among them as well as the smooth progress of the project. Similar to the distribution of benefits, the allocation of responsibilities among the members of a consortium must be clearly specified in an agreement. However, in practice, due to the complex and changing nature of projects, it can happen that responsibilities are not clearly defined or that the various parties have different understandings of these responsibilities, which can lead to disputes. If one of the members in a consortium breaches its obligations or is unable to fulfill its contractual responsibilities, the other members may have to assume joint liability, thereby increasing their own risks. Second, the cost of communication and coordination within the consortium is high. Although a consortium is a merged organization, it consists of multiple independent legal entities or other organizations, and the members may differ in terms of corporate culture, management styles, and interests, which leads to increased costs in areas such as communication, coordination, and decision-making. Also, regarding the assessment of consortium qualifications, the lower standard applies, not the higher one. In accordance with Article 31 of the Law of the People’s Republic of China on Bidding, all parties forming a consortium must possess the necessary capabilities to undertake the bidding project. If **relevant regulations or the bidding documents specify certain requirements regarding the qualifications of bidders, all parties in the consortium must meet those specified qualification requirements. For a consortium composed of entities from the same specialty, its qualification level will be determined based on the entity with the lower qualification level. Therefore, in actual bidding decisions, the assessment of qualifications must be considered carefully. The following provisions should also be noted for consortium bidding. (1) The parties to the consortium shall sign a consortium agreement and a leading party authorization document in the format provided in the tender documents, specifying the rights and obligations of the consortium’s leading party and each of the parties ； (2) It is the aforementioned matter regarding the assessment of the consortium’s qualifications. A consortium composed of entities from the same specialty shall have its qualification level determined based on that of the entity with the lower qualification level ； (3) After bidding in the name of a consortium, the members of the consortium shall not bid separately in their own names or as part of other consortia for the same tender section. (4) Each party in the consortium shall fill in the relevant forms in the bid document in accordance with the requirements set out in the tender documents, and the lead member of the consortium shall be responsible for compiling the information provided by all consortium members before submitting it to the tenderer ； The bid document shall be stamped with the official seal of the leading entity and the legal representative’s seal ； (5) Bid security shall be submitted by the lead member of the consortium ； The performance bond is submitted by the parties in the consortium or the lead party ； (6) After the consortium wins the bid, all parties involved in the consortium must sign a contract with the tenderer ； (7) Although a consortium appoints a lead member, the various members of the consortium remain jointly and severally liable during the bidding, contracting, and performance of the contract.