1.17 JVs are usually established because the parties have complementary objectives and share a view of the nature and scope of its activities and the JV's longer term objectives and benefits. This will need to be tested through the business case development and in most cases through a competitive procurement process. If this alignment of interests is not present, a JV is unlikely to be the best structure to use.
1.18 By contrast, if the public sector wishes to conclude arrangements which are clearly defined and limited in scope and with little or no potential for growth and diversification, or where risk transfer rather than risk sharing is sought, the public sector's objectives may be achieved more easily through a more straight forward contractual mechanism or through PFI.
1.19 Policy stability is especially important in the context of long term programmes. If the public sector body is not able to provide a satisfactory longer term framework within which the JV is able to operate, the JV and its business may struggle to meet these changing objectives. The JV management team may then be increasingly distracted from running its business and ultimately, should the parties' interests become misaligned, the basis on which the JV was formed will become invalid.
1.20 Box 1.A below describes the principal rationales for the public sector to enter into JVs with the private sector.
Box 1.A: When should the public sector consider forming JVs Usually, for the public sector, the core reason for considering JVs is to mobilise complementary resources. The JV enables the complementary resources of the public and private sector parties to be integrated, so creating a wholly new business not otherwise achievable. Typically the purpose of the JV would stem from one, or a combination of the following objectives: ∙ Value capture - The desire to capture long term value, from say property development or a commercialisation/Wider Markets Initiative opportunity. A JV provides an alternative mechanism for capturing longer term value, as the public sector body will hold an equity stake in the JV. ∙ Route to market - The need to establish a new route to market for intellectual property or other assets, such as through the formation of a spin-out company from a Public Sector Research Establishment (PSRE) to establish and run a self-standing business. This is generally coupled with a desire to share in value capture as above. ∙ Service delivery programmes - The need to manage a long-term programme of service delivery and/or investment in order to improve the delivery and efficiency of public services and infrastructure justifies the formation of a separate self-standing and sustainable organisation. This would include e.g. Building Schools for the Future and Local Education Partnerships (see Chapter 2, example 4). |
1.21 In some instances the public sector may be procuring a partner for a JV which later may then enter into contracts with the same public sector body. Where this happens, the public sector body should keep clear separation between its role as a JV partner and its role as a client. If it has concluded that a JV is an appropriate structure with which to achieve its objectives, by implication it considers that a new entity with specific defined objectives which meet the needs of the public sector body (the JV) is a suitable delivery vehicle. Commercial sponsors will likely (and reasonably) consider that the JV will best achieve those objectives if it is allowed to focus on them, with any broader perspective being left to the authority in its role as client.
1.22 A more detailed 'checklist' of factors supporting the use of a JV is also provided in Annex J. The factors listed in Annex J could be used as the basis for an evaluation framework.