What is a consortium?
A consortium is a formal association of companies (and individuals) that come together, working to a defined objective, for example accessing a new market, expanding services, meeting a gap in provision.
So why form a consortium?
Consortia are increasingly popular with charities and social enterprises and very much in line with public policy thinking. They offer many benefits (such as improved service quality and value for money) and can provide a positive, future-oriented focus when all else seems to be cuts and retrenchment. For some, particularly smaller organisations, they can make the difference between survival or not.
Benefits of consortia
There are many reasons why organisations choose to work in a consortium, including:
- gaining access to markets that they cannot access alone - due to limited geographical reach, a limited range of products and services or limited capacity, for example
- simplicity for public service commissioners who increasingly want a single point of contact to limit duplication of provision in an area and increased value for money
- reducing overhead costs, such as sharing back-office services
- sharing risks and liabilities for contract delivery
- learning from each other and sharing complementary skills and expertise - for example staff, workforce development or impact measurement
- improvements to service quality and value for money, for example referring customers to each other’s complementary services)
- developing new services through the creative interaction of ideas
- an increase in capacity which enables strategic partnerships with large organisations because the consortium is big enough to be taken seriously
- provides access to social investment
In practice, when considering setting up a consortium, the benefits will need to be weighed against the risks and costs. So, what are the downsides?
Disadvantages and pitfalls of consortia
- direct costs: associated with set-up and operation, such as legal advice
- opportunity costs: consortia take time to set up and operate, time you (and your staff) could spend on other things
- delays: joint decision making generally takes more time than making decisions alone
- reputational risk: each organisation is, to an extent, trusting its reputation to others, if one fails that may reflect badly on others
- the need to compromise: differing organisational values and cultures introduce tensions and some may fear a loss of independence
Types of consortium
Consortia come in many shapes and sizes, but the main types are:
- The Managing Agent Model (MA) – where a lead partner secures a contract and sub-contracts the delivery to other providers. The MA doesn’t deliver services, instead they specialise in providing a contract winning and management function.
- The Managing Provider Model (MP) – like the MA model, but the lead partner both sub-contracts and delivers services.
- The Super-Provider Model (or special purpose vehicle) – by far the most common model, this is where a group of individuals or organisations come together to set up a new legal entity, which embodies collective ownership and control. Through this structure many separate providers (or individuals) effectively become one large provider, usually with a central hub that is concerned with scoping and bidding for contracts, developing key relationships, managing contracts and recruiting and managing membership.
Which is right for us?
There is no right or wrong option. The lead body option tends to be quicker to set up, has lower overheads but has unequal risk and liability sharing (because the lead body takes on more). The super provider option takes more time (for example to establish its own policies before it can pre-qualify for tendering) and there can be difficulties demonstrating its track record. However, it shares risks and liabilities equally and can even provide liability protection for the members. VAT issues need careful thought in both, especially where grants are involved.
- trust, openness and honesty between members are essential
- choose members carefully - look for shared values, not just skills or geographical reach. Make sure each member is financially sound through credit checks.
- be clear on the purposes and objectives of the consortium - what do you expect to gain?
- be realistic about the risks and costs involved
- take time to choose the type of consortium, to get the details right and to allow trust and strong relationships to develop
- use expert help appropriately, legal advice for example, and consider an independent broker (such as an Independent Chair of the consortium board or management committee)
- don’t neglect your own organisation or day job in favour of the consortium
- embed robust monitoring and evaluation at the outset
- clearly articulate and document who is responsible for what, where and when?
- manage risks proactively, use appropriate controls and address issues openly and transparently