How to Build a Consortium

1. How to Build a Consortium

A consortium is a group of organisations working together to secure funding and deliver services.

Consortia can take one of several structures. They are flexible enough to be shaped around the type of funding you want to win and the service you want to deliver.

Is consortium for you?

Setting up a consortium can provide huge benefits. By working with other organisations which add value to your own you will be more able to secure additional income, diversify and provide better services.

However, setting up a consortium takes a big commitment from all partners. There are also administrative and cost burdens associated with building a consortium.

This means that it’s worth taking the time to carefully consider the work involved in setting up a consortium before getting started.

Using this guide

This guide is divided into steps to take you through consortium set up. It has been written for any organisation considering setting up a consortium.

Get support

Consortium set up is a big topic. If you need help, our group support team can offer one to one advice to ensure your consortium is a success.

Contact us to discuss your needs.

2. Identify Partners

Before taking any steps toward the legal set up of a consortium, you need to consider who will be in your consortium.

Identify Potential Partners

You should begin by sourcing appropriate partners. At this stage your consortium probably doesn’t have a strategic direction, so it’s worth taking an inclusive approach to identifying possible partners.

Your goal for the moment is simply to work out whether or not there’s interest in setting up a consortium.

You can find potential partners by:

Hold Initial Meetings

The first step to building your consortium is to invite potential partners to a meeting. Getting people in the same room to start the process of building relationships and trust is important. Your initial meeting should be the first of many, as you should meet partners on a regular basis throughout the development of a consortium.

The discussions required in the initial meetings will vary depending on the size and focus of your consortium, but we recommend including the following items on the agenda of your initial meetings:

  • What collaboration and consortium development mean
  • The positives and negatives of this approach to working
  • What the group wants to achieve
  • The basic models for consortium working and which ones members would like to explore further
  • A general discussion about confidentiality and trust

You should take a flexible, participative approach in your first meeting. Each prospective partner should have an opportunity to ask questions and voice concerns.

3. Assess the Practicalities

With possible partners identified and an initial meeting under your belt, your next step is to explore the practicalities of running a consortium.

Identify Resources

In order for the consortium to be viable in the long-term, funding will likely need to be secured.

Before moving forward, you should map how your consortium might be financed. As a group, you should consider contacting possible funders like commissioners to discuss the proposed consortium. You should also consider whether or not you’ll require partners to contribute a membership fee to be part of the consortium once it’s up and running.

Remember, you don’t need to discuss the details of what will be tendered for and the resource distribution amongst partners right now. At this stage you’re simply trying to work out whether there is a market for your consortium and whether it is worth continuing.

Secure board approval

Each partner will have its own governance procedures for making decisions. It is important that these functions are respected and incorporated into the development process. Before choosing to be a part of the consortium, each partner should seek authorisation from relevant managers, directors or trustees in accordance with each partners’ governing document.

Form a Core Group

For your consortium to be a success, there will need to be a nucleus of partners with the skills, capacity, time and drive to lead the consortium’s development. We generally call that nucleus of partners the ‘core group’.

It’s important to note that partners which aren’t part of the core group can still be part of the consortium.

There are a variety of ways your core group might emerge. In some cases, the core group can emerge naturally during discussions. In other situations, the group will be elected. It all depends on your consortium and what you want to achieve.

However your core group is chosen, it’s important to remember that the core group is not the formal, long-term consortium leader. You’ll make decision about formal consortium leadership and structure later.

The decision about the core group also doesn’t mean that you can never welcome another group. Other partners may join at a later stage if the original partners are open to new additions.

At this stage, you just need to ensure that a nucleus of groups will be driving your consortium’s development.

4. Developing: Vision, Direction and Confidentially

At this stage you should have buy-in from a group of possible partners for the consortium and a core group leading the consortium’s development.

Now you need to take practical steps to develop your consortium.

Create Terms of Reference

Terms of reference describe the consortium’s scope and strategic direction. They’re essential to keeping the partners involved in the consortium’s development on the same page. At a minimum, terms of reference should include:

  • Vision, objectives and scope of the consortium
  • Stakeholders, their roles and responsibilities
  • Broad actions and timeframes for achieving the consortium’s aims
  • Resources and financial requirements

As you’re still in the early stages of developing your consortium, the terms of reference document should be concise. More detailed information can be added later during the ‘formalising’ stage of consortium development.

Address Confidentiality

Trust and information sharing are common issues when developing a consortium. You should address these by ensuring there are frequent meetings and workshops with plenty of time for individuals to get to know each other.

You may also want to consider putting an agreement in place to protect confidentiality. The form of this agreement depends on the unique requirements of your consortium. Some organisations may want to ensure the information they share, especially its commercially sensitive information, is not used for a purpose other than for the development of the consortium.

A Confidentiality Agreement offers organisations the security that all members will only use information as agreed by the consortium. For other consortiums, a verbal agreement may suffice.

We can provide guidance on building trust and confidentiality as required. Contact us for support

Run a Visioning Exercise

It is essential that consortium members have shared clarity about what they want to achieve by working together. A visioning exercise enables members to develop:

  • A vision statement describing what the consortium wants to achieve for beneficiaries by working together
  • A mission statement describing how the consortium plans to achieve the vision

We can facilitate visioning sessions on behalf of your consortium. Get in touch

5. Developing: Due Diligence and Capability Analysis

To ensure your consortium’s success, you need to have due diligence processes in place and undergo a frank assessment of your consortium’s abilities.

Due Diligence

It’s important that you’re clear on what standards your consortium will have for partners. Due diligence is the process organisations undertake to examine existing and possible partners and decide whether or not they’re appropriate permanent consortium partners.

A strong due diligence policy has three main elements:

  1. A benchmark defining the standards that consortium partners should meet
  2. A process to assess both existing partners and prospective partners and then decide whether or not they reach the benchmark
  3. Procedures to decide how to support partners or prospective partners who don’t meet the benchmark

It’s important to realise that these standards must not be imposed on partners by the core group. Rather they should be agreed collectively and all partners should use them to examine themselves.

If a partner falls short of the benchmark, your due diligence process should have provisions to help them improve.

Understand the strengths of the consortium

You need to understand your consortium’s strengths and weaknesses. A Capability Analysis will map the strengths and shortfalls of the consortium as a whole. It will cover:

  • People assets – The skills and expertise of trustees, staff and volunteers
  • Tangible assets – physical assets, for example property or money
  • Intangible assets – such as reputation, contacts, or intellectual property

The findings of the analysis can help you identify steps you may need to take to strength the consortium. These steps could include bringing in additional organisations to fill gaps or bulk purchasing training packages to up-skill the consortium as a whole.

Understanding the consortium’s strengths and weaknesses will also help shape your consortium’s funding strategy by identifying where you could prepare a strong tender or grant application.

6. Developing: Choose a Consortium Structure

There are a number of consortium structures available. Below you’ll find an outline of three broad structures your consortium could take and the positives and the negatives of each model.

The most suitable model for your consortium will depend on what your consortium aims to achieve and the needs of your partners. No one model is the best approach in all cases.

You should bear in mind that these models are flexible and your consortium may choose to customise a model according to your needs.

Introducing a structure

Up until this point, all of your consortium partners have been on more or less equal footing. Once you choose and formalise a structure, your consortium will have a clear hierarchy. In many cases, this may be reinforced by legally binding contracts between partners.

This means that it’s worth taking time to choose the right structure and going through the process of formalising with care.

Structures summarised

Lead Provider Model

The Lead Provider Model is the most common approach. It operates by having a lead organisation which bids for funding on behalf of the consortium. The lead organisation also delivers services. Learn more

Managing Agent Model

The Managing Agent Model is very similar to the Lead Provider Model in that it has a hierarchical structure.

The key difference is that, in this structure, the lead organisation does not deliver any of the services. Instead it applies for funding, manages contracts and manages sub-contractors. The lead organisation is called the managing agent in this structure. Learn more

Hub and Spoke Model (also known as special purpose vehicle)

Under this model, the consortium creates a new legal entity for the consortium called a Hub Support Unit. Organisations then become formal members of the consortium. Learn more

7. Structure Option One: Lead Provider Model

The Lead Provider Model is the most common approach used by consortia. It operates by having a lead organisation, which bids for funding on behalf of the consortium. The following illustration shows how this model is set up:

About this model

Under this model, the consortium does not have a legal identity. Each partner retains its individual identity and the lead organisation makes contracts with consortium partners.

These partners will then become sub-contractors and deliver services. The lead organisation will also deliver services.

Contracts between the lead organisation and sub-contractors are developed and managed by the lead organisation. This means the sub-contractors must adhere to the rules and processes laid out by the lead organisation.

When developing the bid, partners and sub contractors will agree who delivers the various elements of the service and how the funding will be divided amongst the members.

If a bid is submitted and is successful the lead organisation is responsible for the whole contract, including any work they sub-contract out.

A management fee will usually be allocated to the lead organisation to cover their costs for managing the contract.

Advantages:

  • Lead organisation is likely to understand service provision as they also deliver services.
  • The least complicated model.
  • Usually cheaper and quicker to setup in comparison to the Hub and Spoke.
  • Frees up delivery partners to focus on work with beneficiaries as lead deals with management of the contract.

Disadvantages:

  • There can be a power imbalance between the lead organisation and sub-contractors.
  • Lead organisation has primary responsibility and associated risks for the contract.
  • Risk of damaged relationships between the lead organisation and the sub-contractors due to management relationship imposed on sub-contractors.
  • Delivery partners may receive less resource than if they were delivering as an individual organisation, as the lead agent will receive management fees.

8. Structure Option Two: Managing Agent Model

The Managing Agent Model is very similar to the Lead Provider Model. The key difference is the Managing Agent does not deliver any of the services. Its role is to apply for funding and manage contracts and sub-contractors. The model is illustrated below:

About this model

Under this model, the consortium does not have a legal identity. Each partner retains its individual identity and the managing agent makes contracts with consortium partners.

These partners will then become sub-contractors and deliver services.

Services are provided exclusively by sub-contractors and the Managing Agent will charge a management fee for managing the contract.

Contracts between the managing agent and sub-contractors are developed and managed by the managing agent. This means the sub-contractors must adhere to the rules and processes laid out by the lead organisation.

When developing the bid, partners and sub contractors will agree who delivers the various elements of the service and how the funding will be divided amongst the members.

If a bid is submitted and is successful the managing agent is responsible for the whole contract, including any work they sub-contract out.

Advantages

  • Managing agents tend to be selected for their expertise in contract management. They take responsibility and associated risks away from organisations delivering services.
  • Organisations can concentrate on delivering services, rather than managing the contract.
  • Usually cheaper and quicker to setup than the Hub and Spoke Model.

Disadvantages

  • The managing agent will require a top slice of the value of the contract for managing the contract. This takes funding away from the organisations providing services.
  • The managing agent may not understand the nature of the work being delivered and will be less able to provide advice and support on service provision.
  • Managing agents are often private sector contract management specialists. This takes money away from not-for-profit organisations and the sector.
  • Delivery partners may receive less resource than if they were delivering as an individual organisation, as the managing agent will receive management fees.

9. Structure Option Three: Hub and Spoke Model

This model creates a new legal entity for the consortium called a Hub Support Unit. Partners then become formal members of the consortium. The following image illustrates the hub and spoke model:

About this model

The Hub Support Unit bids for contracts and is the central management point for contracts. Service delivery is then sub-contracted to consortium partners and, in some cases, bodies outside the consortium.

Depending on the nature of the contract and the members’’ experience, all members of the consortium may deliver services or service delivery may be limited to handful of organisations.

This model is normally used to bid for a range of different contracts over a longer period of time rather than one specific contract.

Advantages

  • Provides an independent, democratically run board.
  • Less risk on any one organisation.
  • The consortium exists in the eyes of the law.
  • A more practical model for consortia looking to exist over the long-term.

Disadvantages

  • Eligibility for tenders may be problematic, as the newly created organisation (the hub) will have no track record in service delivery and no financial history. However, some funders will accept an amalgamated track record of the members.
  • Creating a new legal entity is time consuming, requires resources and will usually incur legal costs.
  • Creating a new company creates additional reporting requirements, for instance producing annual accounts for submission to Companies House.
  • Depending on the size and scope of the hub, staff may need to be recruited or transferred to the hub, which may have TUPE implications.
  • More complex to dissolve

10. Developing: Aims and Objectives

Once you’ve chosen your structure, you need aims and objectives that specify in more detail what the consortium is aiming to achieve.

Your aims enable your consortium to focus on its strategic direction and assess its performance against each aim.

To ensure success, your aims should be SMART (Specific, Measurable, Achievable, Resourced, Time-Related).

You should look back at what you discussed in your visioning exercise and terms of reference when you flesh out your aims and objectives.

Get support

We can help you develop aims and objectives in a way that helps your consortium thrive. Get in touch.

11. Developing: Risk Assessment and Business Plan

Before formalising your consortium, you should consider risks and create a full business plan. 

Risk assessment

A risk assessment enables an organisation, or a group of organisations, to identify risks, the severity of each risk, and to explore solutions to reduce the impact of risks. Conducting a risk assessment will also give you the chance to ensure that the benefits of the project merit the risk incurred. In some cases the risks may be too high and the consortium development will be stopped.

While risks vary according to the work of particular consortium there are some frequent risks you should consider include:

  • Failure to win contracts or fund the consortium
  • Poor performance against contract requirements
  • Damage to credibility of individual organisations or the local sector as a whole
  • Lack of cohesion between members
  • Lack of commitment from members
  • Failure to meet members’ expectations, for example, insufficient returns for the time invested

Business plan

Your Business Plan should explain where the consortium is now, where it wants to be in the future and how it plans to get there in the future. It will bring all of your planning together into a single document.

Support for business planning

If you’re not sure how to create a business plan, our group support team is here to help.

Contact us to find out how we can help.

12. Formalising: Lead Provider / Managing Agent

The process for formally creating your consortium is largely dependent on the model structure that has been selected. This section is for consortia that will take the Lead Provider or Managing Agent model.

Get advice on formalising via a Hub and Spoke model

Please note that this section does not constitute specific legal advice. We recommend seeking professional legal advice when developing any legal agreements for your consortium.

Choosing a lead organisation or managing agent

There is no right or wrong way to select your lead organisation or managing agent. You may already know who your lead is by this stage. In other cases a leader may emerge naturally or by a vote. It’s also possible that there isn’t a lead organisation or managing agent within your existing partners, so you may need to recruit externally.

While there is no one right way to select a leader, it is important that no partners feel that a leader has been unfairly imposed on them. You should have a system in place to select your lead that all partners feel is fair.

If you need help selecting your lead contact us.

Developing a Memorandum of Understanding or Partnership Agreement

Consortia seeking to adopt either a Lead Provider or Lead Provider Model may want to formalise the relationship with either a Memorandum of Understanding (MOU) or a Partnership Agreement (PA). A MOU or PA details the agreement between parties, including each organisations requirements and responsibilities.

Determining whether an MOU or a PA is contractually binding is based upon the content of the agreement. Legal advice should be taken to develop a legally binding MOU or PA.

13. Formalising: Hub and Spoke Model

The process for formally creating your consortium is largely dependent on the model structure that has been selected. This section is for consortia that will take the Hub and Spoke Model.

Get advice on formalising via a Lead Provider/Managing Agent model

Please note that this section does not constitute specific legal advice. We recommend consortia seek professional legal advice when developing any legal agreements for their consortium.

Set up a New Company

Consortia which have chosen the Hub and Spoke Model will need to incorporate a new company. There are many different types of companies that you could choose.

Our Legal Structures Guide gives an overview of the types of companies available.

If you need help deciding which type of company to become, we can help. Contact us.

Once you have your company, your membership prospectus and governing document will determine how your consortium operates.

14. Formalising: Membership Prospectus

The Membership Prospectus sets out the criteria organisations must meet to be eligible to join your consortium and how they should go about joining. 

You should review the information in your Due Diligence discussions when creating your prospectus.

What a membership prospectus contains

Your prospectus should set out your consortium’s eligibility criteria. Common criteria to become a consortium partner include:

  • Not-for-profit organisation
  • Geographical area of operation
  • Service delivery experience
  • Readiness to deliver contracts, including: strong financial health, comprehensive policies and procedures, suitable governance arrangements

The prospectus will also include further information to enable potential members to decide whether they would be interested in being part of the consortium. This should include information such as:

  • The procedure for applying for membership
  • The vision and mission of the consortium
  • Details of the adopted model structure
  • Governance procedures
  • Roles and functions of members
  • The consortium’s approach to quality assurance
  • Whether or not there are any fees for joining

Fees

The introduction of membership fees increases the level of commitment members place in the consortium, however it also increases the expectation for returns of investment.

When considering whether or not you should charge fees for joining, remember that partners may have already incurred costs such as legal fees. You may want to consider a sliding scale of fees based on organisation size or anticipated gain from the consortium.

Two-tier membership

Some consortia will include a two-tier membership process - full membership and associate membership. If an organisation meets all the eligibility criteria and is ready to deliver services on behalf of the consortium they will be granted full membership.

Associate membership may be given to organisations that do not fully meet the criteria but are working towards meeting them. They will often receive support from the consortium to develop in order to meet full membership requirements. Associate members will not usually be included in delivering services.

Do you need a membership prospectus?

Not every consortium needs a membership prospectus. If your consortium is only set up to apply for a particular contract and will never welcome new partners, you may not need one. If, on the other hand, you consortium may welcome new members or will bid for multiple contracts, a membership prospectus may be useful.

15. Formalising: Quality Assurance

Whatever its model, your consortium needs to consider how it will ensure high-quality service delivery.

Why is quality assurance important?

Providing cost effective, innovative and high quality services is essential to your consortium’s success. Additionally, if you’re seeking deliver contracts for government agencies, including local authorities, you will be required to meet standards laid out in the commissioning processes and contractual requirements.

As a result, quality assurance systems should be developed and implemented before a consortium starts delivering services. Using these systems will also set the standards required for organisations to deliver services on behalf of the consortium. As such, they ensure that the quality of service delivery is consistent across consortium members.

Your quality assurance system should also seek to define what actions should be taken if a member isn’t meeting quality standards.

Quality assurance also feeds into how your consortium evaluates and develops its services.

Learn more

There are a range of Quality Marks that organisations and consortiums can adopt. Find out more in our Quality Assurance Guide or contact us for support.

16. Growing and Service Delivery

With your consortium set up, you’ll need to start winning funding and delivering services.

You’ll also need to consider income generation, branding, marketing and managing your consortium.

This can seem like a daunting task, but you don’t have to go it alone.

We offer free advice and support on key topcis like:

  • Secure contracts
  • Manage your consortium
  • Identify and leverage each partners’ strengths

 Contact us to discuss your needs

17. Resources and Support

These resources can help you build your consortium.

Downloads

Get support

If you need help building your consortium, contact us.

Our experienced group support team can help you with all aspects of building, developing and managing your consortium.

 

Find out more

To learn more or get support for your group, visit www.valonline.org.uk/groups, email helpline@valonline.org.uk or call us on 0116 257 5050. Lines are open from 10am to 3pm, Monday to Friday.