ABSTRACT
Reducing the risk envisaged in a project is a clear aim of any company engaged in project work. One way to achieve this is by sharing that risk amongst a group of companies, who in some way will either share or participate in the project. The intercompany relationship which is then constructed, is critical to the success of the project, especially since a sharing of risk normally requires a corresponding share in project benefits, such as profit or exclusive positioning. Equitable arrangements are required, suitably attractive to all participants. Much effort, therefore, is expended in putting together a contractual model to tie the parties together in a mutually acceptable manner.
The choice of arrangement for risk and revenue sharing partnerships is directly dependent on a series of factors, including the type of project, the level of investment and the nature of the envisaged risks.
This paper reviews the concepts in typical risk and revenue sharing models, for the type of projects which require research and development activity funding prior to commencing series production. The advantages and disadvantages are highlighted and implications on the organisation are discussed. The conclusions are that high investment risk projects require increased sophistication in contract models. However, more complexity generally brings higher administrative costs. Nevertheless this is outweighed by commercial attractions in the area of risk.
