Joint ventures, local partners and eligibility in public tenders

A foreign firm that wants to win public work in a new country usually needs a partner. The tender may require local experience the firm does not have, the buyer may favour domestic suppliers, or the work may simply need people and equipment already on the ground. The legal form of that partnership decides who is liable, who can bid and what happens when things go wrong. Getting it right is a matter of reading the tender rules before the term sheet.

Three ways to work with a local firm

A joint venture or consortium is a group of firms that bid together and sign the contract together. A subcontract keeps the contract with the lead firm and hands a defined scope to the local partner. A local representative or agent helps with paperwork and relations but does not take on contract risk. Each has a different effect on eligibility, liability and experience credit.

The buyer's rules say which are allowed and how experience is counted. A bid that relies on a partner's experience must show how that experience is transferred to the bid: the partner who holds it normally has to be a joint venture member or a named subcontractor with a binding commitment, and some documents set a minimum share for the member that provides the experience. Read the qualification section closely, because a partnership that looks strong in a presentation may fail on one line.

What the World Bank rules say

The World Bank's Procurement Regulations for IPF Borrowers allow firms to form long-term or procurement-specific joint ventures (paragraph 5.38). All partners are jointly and severally liable for the entire contract, which means the buyer can claim the full amount from any one of them. The Bank does not accept mandatory joint ventures: a Borrower cannot require firms to form one as a condition of bidding.

The same rulebook contains the single-bid rule. A firm may not submit more than one bid, either alone or as a joint venture partner in another bid, except for permitted alternatives, and doing so disqualifies all bids involving that firm (paragraph 3.18). Subcontractors are not limited in the same way, which is why some firms choose a subcontract with several bidders where a joint venture would lock them in. For consulting proposals there is a similar restriction (3.19), with sub-consultant participation allowed if the request for proposals permits.

Eligibility rules apply to every member. The Bank permits eligible firms and individuals from all countries (3.20), and a Borrower may not exclude a firm for reasons unrelated to capability, resources or conflict of interest (3.21). The exceptions include national laws or UN Security Council decisions that prohibit relations with a country, and firms that are sanctioned or debarred. State-owned enterprises may compete only if they are legally and financially autonomous, operate under commercial law and are not supervised by the contracting agency. One ineligible member can sink the whole joint venture, so check every member against the sanctions lists before you sign.

Preference rules affect partner choice. Under the Bank's domestic preference provisions, domestically manufactured goods receive a 15 percent margin over the price of foreign goods, and for works in countries below a per capita income threshold, a 7.5 percent margin is added to foreign firms' prices (5.52 and Annex VI).

What other systems say

The IDB's rules follow the same logic: the borrower runs the tender, and eligibility is open to firms from all 48 member countries unless the documents say otherwise. National systems vary more. In Colombia, the procurement agency's guide for foreign suppliers says a foreign legal entity does not have to set up a branch to submit an offer, but must do so if it is awarded a contract that requires constant presence in the country, such as works, services or a concession. It also notes that foreign suppliers without a domicile are not required to hold the national supplier register, the RUP, and must prove the same information to the contracting entity. A foreign firm with a Colombian partner can therefore rely on the partner for local presence and still keep its own corporate documents in order.

Conflict of interest

Conflicts can arise from the partner network as well as from the firm. The World Bank's business-opportunities guide warns that a consultant who worked on identification, preparation or appraisal of a project may be barred from later work on the same project because of conflict of interest. If your potential partner has done early-stage work for the buyer, ask what it did and whether it would affect the bid. The same applies to former officials. Government officials may be hired as consultants only in narrow circumstances (3.22d), and many national laws bar firms that employ recent senior officials from bidding for work in the same area.

Testing a partner

Look at five things before you sign anything.

• Capacity. Does the partner hold the certified experience the tender asks for, in the exact form required?
• Finances. Audited accounts for the required years, bank references and the ability to issue the bid bond. Rules on who may issue the guarantee differ, so ask the bank early.
• Integrity. Sanctions and debarment lists of the multilateral banks, national debarment registers, beneficial ownership and any pending investigations. Public registries and open contracting data help here.
• Reputation with the buyer. How often it has won, how it performed and whether the entity paid it on time. Open procurement datasets in countries such as Ecuador, Colombia and Chile show award history in bulk.
• Fit. Whether the partner is already on a competitor's team. In rulebooks with the single-bid rule, exclusivity matters, and a handshake agreement does not protect you from a partner who is also bidding elsewhere.

What the agreement should say

A joint venture agreement for a tender sits on top of the bidding rules, not in place of them. It should name the lead member and its authority, divide scope and price, and state how liability is shared between partners, even though the buyer sees joint and several liability. It should say who provides the bid bond and who pays if it is called. It should commit both to exclusivity for this tender, set out how the partners decide on pricing and on clarifications, and state how costs of the bid are shared if the bid fails.

After award, the agreement has to cover performance security, insurance, change orders, claims, tax and the process for resolving disputes between partners. It also needs exit terms. If one partner becomes ineligible, is sanctioned, goes insolvent or breaches the agreement, the other must be able to continue and, where the buyer permits, replace it.

A sensible order of work

Read the tender's rules on partnerships and experience first. List which requirements you meet and which you do not. Search for partners who fill the gaps. Test them. Agree a short memorandum before the bid, and a full agreement once the shortlist or award is in sight. Throughout, ask the buyer in writing whenever a rule is unclear, and keep the answers.

Guides explain how things generally work. They are not legal, tax or investment advice for a specific project or country. See our editorial policy.