Sub-contractors versus Consortiums and Joint Ventures
As mentioned in our previous article, Pre-Qualification Criteria When Awarding Tenders , the Draft Preferential Procurement Regulations states that 30% of all Government Contracts above R30 million must be sub-contracted to specific categories of SMME's. These SMME's include, but are not limited to, black female owned and black youth owned businesses. As soon as the new Regulations are gazetted there is going to be a need by businesses to do sub-contracting on a large scale.
In order to help with the confusion that arises from whether or not one must form a Joint Venture, Consortium or sub-contractor/contractor relationship when responding to a tender it is always good to understand the definition of these types of business relationships:
- A sub-contractor/contractor relationship is when a main contractor hires or employs additional businesses or persons outside of his own business to do work or to deliver services as part of a larger project. The important thing to remember is that the main contractor is in charge and must ensure that the project is executed and completed as stipulated in the contract.
- A consortium is an association of two or more individuals, companies or organisations with the objective of participating in a common activity, such as responding to a tender, or pooling their resources to achieve a common goal. Within the consortium, each participant retains their separate legal status and the consortium's control over each participant is generally limited to activities involving the joint endeavour, particularly the division of profits. A consortium is formed by contract.
- A Joint Venture can be described as a business enterprise where two or more participants come together to share their expertise in order to win a specific contract for a set period of time. A Joint Venture is a separate entity and is not part of the individual participant's own enterprise. Therefor a Joint Venture must have its own set of rules by which it is managed and this is called a Joint Venture Agreement.
In order to become a sub-contractor you will have to have a running business. Main contractors will only use dependable sub-contractors with a proven track record.
To learn more about this and many other tender conditions please attend one of our How-to-Tender workshops. Details can be found here: www.how2tender.com.
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