Can Consortia Provide Buttress For Biden’s Infrastructure Plan? 

Although it appears that the federal government initiates infrastructure projects for the sake of boosting employment and modernizing the country’s basic physical and organizational structure and facilities, a partnership between the government and the private sector can result in more bang for the buck. Business executives claim that the federal government can’t perform infrastructure enhancements alone. Government authorities claim that the private sector can’t do the job on its own either. The obvious way for a successful infrastructure enhancement program is to create a partnership between the business sector and the government. 

One method that would offer more bang for the buck is for commercial businesses to create consortia that can work in partnership with the federal government. Moreover, creating an alliance between government and big businesses in a profitable partnership might be a way to get Republicans in Congress interested in coming on board with Biden’s plan. 

What Is A Consortium? 

A consortium is a group consisting of two or more individuals, companies, or governments that work together to achieve a common goal. Such a structure allows the entities to pool their resources together and still allows each to remain independent in pursuing their normal business operation.  

Consortia are formed in all sectors of the economy including non-profit, for-profit, and education.  

Examples of successful consortia include Airbus, which involves British Aerospace Aérospatiale, and Construcciones Aeronáuticas SA; Hulu, which includes Comcast, Time Warner, the Walt Disney Company, and 21^st Century Fox; and the Space Enterprise Consortium. 

Created and led by the United State Air Force, the Space Enterprise Consortium includes about 200 members, some small businesses, some large businesses, some nonprofit groups, and some involved in academic research. The organization was formed when the Missile Defense Agency wanted faster innovation in military space programs. Companies apply for membership through an online portal and pay yearly dues that start at $500 for the smaller companies and progressively more for larger businesses. The U.S. Air Force funds the group. The concept allows funds to be distributed to contractors faster than with normal processes. 

The Defense Department created similar consortia in such fields as munitions, cybersecurity and rotary aviation. 

The group started with a fund of $100 million. Since its start, funds have increased to $500 million.  

The Space Enterprise Consortium has been able to involve non-traditional partners for the Air Force that did not previously participate in the space business. 

The U.S. Air Force has favored the consortium concept as a means to manage research-and-development and to attract startups and small businesses that don’t commonly work with government. 

In some countries the designation “consortium” and “joint venture” are synonyms. However, in fact a joint venture is a legally incorporated company while a consortium is a loosely held agreement between companies. 

There’s Strength In Numbers 

A consortium is an ideal way for small and medium size businesses to get an opportunity to work with other companies toward a common goal. It offers increased power and influence, as well as greater media exposure. 

Advantages Of Consortia 

Small and medium size businesses can take advantage of consortia as a way to build their individual businesses. For example: 

• It’s easier to share an objective because many companies are speaking with one voice. 
• Small and medium size businesses can learn from each other’s skills and share best practices. 
• It allows businesses to share contacts with other members. 
• It provides an amplified exposure as well as enhances credibility in the media and the industry as a whole. 
• It assists in preventing duplication of effort and yet allows the group to achieve a goal. 

Disadvantages Of Consortia 

Of course, as in any business concept there are disadvantages for some companies to participate in a consortium. For example: 

• Since more people have a vested interest in the project, more people are involved in the decision-making process resulting in slower progression. 
• Getting consensus from all companies involved in the consortium can be a difficult process.  
• Some members may have greater input due to their size or reputation than others, which can cause resentments. 
• There is the challenge of finding time in participating in a consortium in addition to a company’s usual business operation. 

Joining a consortium does not make sense for all businesses. When deciding whether or not to participate a company should consider: 

• Whether they will be sharing the technical and financial risk of research & development. 
• Whether they can focus on short-term development as they outsource long-term research and development to a partner. 
• Whether it allows the business to be on the cusp of the latest technological developments. 

• Whether the experience offers R&D benefits to which they would not otherwise be accessible. 
• Whether they achieve a competitive advantage over companies that are not part of the consortium. 

Examples Of Public Private Partnership Projects 

Previous partnerships between consortia and governments have included agreements that allow the consortia to own a project after it’s construction was completed or for the consortia or private business to receive payment of use fees for a certain number of years allowing the businesses to receive a return of investment. 

Examples of such private-public agreements include: 

• An underground parking lot in Kolkata, West Bengal, India 
• A toll road from Dulles International Airport in Virginia just outside Washington, D.C. 
• Express lanes on Riverside, California freeways from Anaheim to Riverside. 
• Fully private sector 400km passenger rail service for the greater metropolitan area of Toronto, Canada. 

The project in Kolkata involved an underground parking lot that was constructed to relieve parking problems in the heart of Kolkata, a city with a population of 4.6 million people. To alleviate the problem, the authority that manages the city, the Kolkata Municipal Corporation, allowed the construction as a public private project to build, own and operate the lot. 

The private, public project that resulted in the construction of a toll road from Dulles International Airport to Loudon County was sanctioned by a private sector participation policy of the state of Virginia. The project called for the development of a 22km toll road that connects Dulles Airport with Loudon County. The project cost $350 million, of which $332 million was collected through bonds sold to institutional investors. 

The express lanes on California Freeways from Anaheim to Riverside were a project initiated by Orange County in the early 1990s. The private business that constructed the lanes was allowed a return of investment through use fees paid by drivers.  

The passenger rail service for the greater metropolitan area of Toronto was the result of an agreement between LeMine Investment Group and Consortia N.A. Ltd. and MOOSE Consortium Inc.  

The rail system serves a 5,000km urban and semi-rural area that has a population of 1.3 million people and crosses 16 different municipalities in two provinces.  

LeMine Investment Group specializes in investing capital in Canadian projects. 

MOOSE Consortium is Canada’s first private sector start up to enter the metropolitan passenger rail market. Its name is an acronym for “Mobility Ottawa-Outaouais: Systems and Enterprises.” 

The project attracts investors and owners to assist unrelated neighborhoods into a network of linked localities. Each station of the system is autonomous and operates under its own joint use and management agreement.  

Types Of Consortium Investments 

For private investors and private equity syndicates, there are five types of consortia to invest in. 

• Traditional Private Equity Syndicate 

• Co-Investment for passive investors 
• Strategic Partnerships 
• “Allsorts” Consortium 
• Joint Venture 

Traditional Private Equity Syndicate 

Also known as a “Co-sponsor” or Club Deal,” this type of consortium investment involves two or more private equity sponsors, or pension funds that work together as partners. The co-sponsors are equal partners in the transaction and management of the investment. The group can include one or more “lead sponsors.” 

Co-Investment for Passive Investors 

Private equity companies commonly offer this form of investment to existing or potential investors. Co-investors are passive participants and usually invest through a sponsor-managed entity. 

Strategic Partnership 

One or more private equity sponsors leads the group with support from a strategic investor or industry partner that offers specific knowledge or resources. Strategic investors may have an incentive for acquiring certain assets of the consortium dependent on an on-sales agreement to the strategic investor or separate governance or operational arrangements.  

“Allsorts” Consortium 

This form of investment involves private equity, strategic or other principal investors in any combination and includes sub-groups in the consortium including co-lead sponsors, co-sponsors, strategic investors and passive co-investors. 

Joint Venture 

In this case, the consortium is more of a joint venture where lead investors contribute their knowledge or resources to different parts of the transaction, or intends to use the investment as a means to make add on investments. 

Before making a commitment to any kind of investment the investor should get advice from a knowledgeable investment consultant.