A Temporary Joint Venture (UTE) is a cooperation system between businesses for a set period to develop or execute a specific project or service (Temporary Business Association or UTE, a method of incorporation in Spain).
In this arrangement, the allied companies form a single temporary entity that pools their resources, facilitating the execution of projects that each entity could not undertake independently.
In the context of public procurement in Spain, Temporary Joint Ventures are regulated under Article 69 of Law 9/2017, of November 8, on Public Sector Contracts (LCSP). In this article, we will discuss the regulation, operation, and benefits of the UTE.
Requirements for Participating in a Public Tender in Spain
Any individual or entity wishing to submit a bid in a public tender in Spain must demonstrate their eligibility to contract with the public administration. It means proving their legal capacity to act, not being subject to a prohibition from contracting, and showing both economic and technical solvency.
Proof of Economic Solvency
According to Article 87 of the LCSP, the economic solvency must be evidenced by one of the following, as chosen by the contracting authority for the specific public tender:
- An annual turnover, or
- A professional liability insurance policy, or
- Net assets, or a ratio of assets to liabilities, equal to or greater than the requirement stated in the tender announcement.
Proof of Technical Solvency
For technical solvency, the LCSP distinguishes, in Articles 88 and following, between technical solvency in works contracts, supply contracts, service contracts, and other contracts. Bidders must demonstrate relevant experience, describe technical personnel on staff, etc.
The LCSP allows companies that do not meet all the requirements for contracting with the public administration to form a joint venture or UTE, combining their different capabilities to participate in tenders and fulfil all the requirements.
Formation of a Temporary Joint Venture (UTE) in Spain
- To submit a bid in a public tender, the formal creation of the UTE through a public deed is not required. This formalization is only necessary if the public contract is awarded.
- When participating in the tender, the companies forming the UTE must specify the names and details of each company involved and their respective shares in the UTE. They must also commit to formally establishing the joint venture if the contract is awarded.
- Companies that are part of a UTE may register in the Official Registry of Bidders and Classified Companies in the Public Sector, specifying their involvement in the joint venture. Should they be already registered, they only need to express their intention to join the UTE.
- If the composition of the UTE changes during the bidding process and before the formalization of the contract, the UTE will be excluded from the public tender. Changes in company participation do not constitute modifications as long as the classification remains unchanged.
- Mergers, spin-offs, contributions, or transfers of business units affecting companies within a joint venture will not prevent the UTE from continuing in the contract award process.
Operation of a Temporary Joint Venture (UTE) in Spain
- The duration of the UTE will coincide, at a minimum, with the duration of the public contract until its termination.
- Once the public contract is formalised with a UTE, any changes in its composition that result in the increase or decrease of the number of companies involved or the replacement of one or more companies by others will require prior and explicit authorisation from the contracting authority. This authorisation will be granted as long as at least 20% of the contract value has been executed, or in the case of a works or services concession contract, that the contract has been in operation for at least one-fifth of its total duration. In any case, it will be essential to maintain the required solvency or classification, and the companies forming the new UTE configuration must have legal capacity and not be subject to any contracting prohibition.
- If any of the companies within the joint venture enters bankruptcy proceedings, even if the liquidation phase has commenced, the execution of the contract will continue with the remaining company or companies, provided they meet the required solvency or classification criteria.
Liability of Companies Participating in a UTE in Spain
The liability of the companies forming a UTE is joint and several.
Additionally, the joint venture members are not liable to the public administration in proportion to their participation percentage; the administration may demand full responsibility from any members, regardless of any internal agreements (which are not enforceable by third parties) that may exist among the UTE members to distribute liability among themselves.
If you require further information regarding temporary joint ventures in the context of public procurement in Spain,
