What is a Consortium Agreement?

A consortium agreement is defined as a legal agreement between two or more parties that agree to collaborate and work together for a specific purpose or project. It is commonly used in construction law for construction projects, but can also apply to joint ventures, research and development collaboration, technology consortium, and public-private partnerships (PPP).
The key purpose of a consortium agreement is to create a collaborative relationship among the parties to achieve a common goal. It differs from other legal agreements , such as joint ventures or agency agreements, in that it focuses on the collaboration of the parties rather than a business entity that stands as a separate legal entity. A joint venture is a business in its own right (although typically viewed as unincorporated). In contrast, the consortium agreement does not give rise to a business entity or a separate legal person. As a result, it does not have a legal structure, such as a board of directors, funding, or other physical resources.

Key Elements in Consortium Agreements

A Consortium Agreement is essentially divided into three types of components:

1. The objective(s) of the consortium

A thorough understanding of the objectives of the consortium is critical to drafting an effective agreement with limited risk of dispute or litigation between parties. The following questions are potentially useful in identifying objectives:
· What factors are driving the desire to form a consortium?
· How long will the consortium exist?
· Is the consortium for a research program, a development program, or a production program?
· What is the political environment?
· Is the consortium contractually or otherwise obligated to obtain minimum levels of performance from its members?
· Is there a need for a technology information bridge between two groups of people?
· What is the policy regarding the exchange of confidential information and intellectual property?
· What effect will participation in the consortium have on the member’s relationship with the other members?

2. the broader rules under which the consortium or collection of parties will operate

The rules under which a consortium will operate is a key part of the agreement which should be entered into as a single document. The substantive elements of the consortium agreement should include (but are not limited to) the following:
· Identification of the contracting parties
· Definitions
· Objectives of the consortium
· General principles and scope of work
· Structure
· Consortium management
· Finances
· Procedure

3. Arrangement for the conduct of the affairs of the consortium

There are a wide range of widely accepted standard clauses which can be found within any business contract, but in addition to the standard clauses, the agreement should also include clauses addressing issues unique to consortiums. The following clauses may need to be incorporated in a consortium agreement:
· Representation and warranties
· Liability
· Force majeure
· Contracting out or, alternatively, assignment
· Confidentiality
· Intellectual property rights, know-how and intellectual capital
· Publication
· Miscellaneous
It is important to note that every consortium agreement is unique and should be customized to the membership and individual circumstances. Nevertheless, best practices dictates being familiar with how consortium agreements typically appear. Becoming familiar with consortium agreements will help with drafting a comprehensive consortium agreement while safeguarding against post-agreement disputes between parties from arising.

Advantages of Consortium Agreement

A Consortium Agreement can provide a host of benefits to all the participating organizations. There can be mutual benefits, for instance, in the sharing of information and data, such as in large-scale research collaborations, where the entities involved in the Consortium Agreement may be sharing confidential and/or proprietary information and other research results. In addition, the participating organizations may wish to share other resources in respect of a particular project, including, specialized facilities, knowledge and expertise.
Colleges and universities also use a Consortium Agreement in order to receive funding from the National Institutes of Health (NIH). More specifically, large-scale research programs (e.g., program project or center grants) and multi-center clinical trials/epidemiological studies sometimes utilize a Consortium Agreement to establish consortiums consisting of multiple institutions with a lead institution that manages the grant. In this type of arrangement, typically, the parties will contractually allocate joint management responsibilities, ownership of intellectual property, liability, funding distributions and payments, and confidentiality responsibilities among themselves via a Consortium Agreement outside of the NIH grant terms and conditions. By entering into a Consortium Agreement, the various entities can jointly develop and agree upon the terms related to the consortium’s operation, including funds management, among other things, while also satisfying the NIH requirement. Moreover, by not being subject to some of the terms and conditions of the NIH grant, an entity can have broader access to the other consortium members’ intellectual property. As an example, the NIH will not allow a grantee to share its intellectual property with another grantee, but there are exceptions to this general rule under 37 CFR § 401.14. Other advantages might include the shared resources, risk distribution, and expanded expertise across the consortium.

Common Uses for a Consortium Agreement

Industry-wise, consortiums are prevalent in the following areas:

  • Information Technology
  • Pharmaceuticals
  • Construction
  • Energy Industry
  • Urban Development
  • Disaster Management

In the IT field, multinational companies outpace their competitors in terms of revenue, number of employees, and cost-effectiveness by collaborating on R&D and technology by forming consortium agreements. An example is the 5G Automotive Focus Group, which, consisting of the likes of Audi, BMW, GM, Porsche, Bosch and a few others, is aimed to develop the V2X specifications needed to enable connected cars to communicate with their surroundings and with each other.
The pharma industry, like information technology, combines resources to undertake new drug development. Other than pooling R&D chemistry and specialized technology costs, consortiums also save the need for some companies to build world-class research facilities.
Construction projects in both public and private sectors require consortium agreements due to the typical size of the projects, technical complexity, and the geographical distribution of the workforce. Take the case of the European Space Agency (ESA) , which in 2018 entered into a 500 million euro co-financing agreement with ArianeGroup and Tesla’s SpaceX. The joint agreement funds the construction of ESA’s new reusable rocket Vega-C launcher and its rocket stages. The Vega-C launcher will be used to launch small satellites into space with the aim to triple ESA’s yearly launch capacity.
The energy industry too has collaborative projects such as Giga New, a joint venture between six of the internets’ largest companies – Apple, Facebook, Google, Amazon, Microsoft, and Intel – to build a self-sustaining data center. The goal is to use renewable resources on-site for both energy and cooling while cutting carbon pollution in half.
Urban development, whose target areas include connectivity, waste management, public transportation systems, urban management, social amenities, and education, often requires the expertise of different fields of specialists; therefore, consortiums are formed by bringing together engineering, logistics, architectural and project management professionals to advance or provide proposed solutions.
Disaster management, in particular supplying of humanitarian assistance, often involves the conglomeration of different skill sets and competencies from organizations working together toward the relief efforts.

How to Write a Good Consortium Agreement

An effective consortium agreement is drafted in advance of submission of funding proposals and in accordance with the broad goals of the project. A best practice is to have the consortium agreement drafted and executed before submission of a proposal so that it can be submitted with the proposal. A series of sections in the proposal commentary and the budget justification, and/or a copy of the consortium agreement may need to be submitted if allowed by the specific program to which a proposal is submitted.
The members of the proposed consortium should determine which model individual agreement works best for the relationship and the objectives of the project. A model with substantive, capitalized provisions may seem counter-intuitive, but in many cases, it is the best approach. This method provides the most efficient means for amending the agreement, since the parties should not need to draft a fresh agreement each time their relationship evolves—only the provisions that address the specific issue under discussion need to be refreshed or replaced with an evolution in the relationship can be addressed by amending the restatement after discussions (with all parties’ consent to add more than just the specific issue under discussion in the amendment) and execution of the amendment. Specific matters that might be addressed in a development agreement rather than in a consortium agreement include confidentiality, intellectual property rights, and ownership of data that are not part of the proposal to the government and/or are driven by the identified deliverables for the agreement.
Often, funders require certain governing terms, such as those included in the provisions and eligibility requirements for SBIR grants, that are simply restated in the agreement. The restated provision should contain the wording the funder has determined to be necessary, rather than adding additional text of potential concern. For example, when always required (i.e., no exceptions) cost sharing requirements apply, such as in certain SBIR grant programs, the contractor may want to restate the hours of commitment that program requirements impose on principal investigators. To this end, when the SBIR cost sharing requirement is limited to the co-PIs at an applicant institution and does not extend to the advisory board, an institution may want to restate the wording of the cost sharing provision in the question and answers to confirm that its interpretation of the requirement is correct. Because no exceptions to the cost sharing requirement are allowed, the restatement may include the words as stated in the solicitation—omitting any need for qualifiers about how costs should be shared (i.e., "costs should be shared evenly among the co-PIs").

Possible Legal Issues

One of the potential legal challenges facing consortium participants is the risk of an antitrust violation. A consortium could violate antitrust law if it results in anti-competitive conduct such as price-fixing or organizing a boycott against a third party.
Another, less likely concern, is violation of export control laws like the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR). In the case of both ITAR and EAR, the underlying legislation that establishes these laws does not outline the rules regarding consortia. However, consortia must still register under ITAR and comply with its requirements. In general, the Department of State has analyzed consortia requests under ITAR on a case-by-case basis. As a result, consortium participants should remember to review the ITAR rules in relation to the consortium to ensure compliance . Also, participants may want to consult with the technical office at the Directorate of Defense Trade Controls to confirm whether there are potential export control implications.
A third issue that could pose a legal threat to a consortium is difficulty resolving a dispute. Dispute resolution methods for consortia can include arbitration, litigation, or a combination of both. Arbitration is generally favored as it provides a faster, more efficient resolution than litigation. However, parties may prefer litigation if they want a public record of the proceedings. Other factors that proponents may wish to consider when deciding what dispute resolution method to adopt include: the cost of resolution; where the arbitration or litigation will take place; what law will apply; and how long it is expected to take before the matter is resolved.