What is a Co-Funding Agreement?
A co-funding agreement is a legal contract between two or more parties who agree to jointly finance a project or business venture. It outlines each party’s financial contributions, responsibilities, and the terms under which the funds will be used. These agreements are especially common in sectors that require large capital outlays, such as technology, infrastructure, and research and development.
In Australia, co-funding agreements are increasingly used across industries, from government partnerships to private sector collaborations. The key benefit is that it allows parties to share both the financial burden and risk, while also benefiting from the rewards of a successful project.
Creating a Co-Funding Agreement
Negotiating a co-funding agreement requires careful planning, clear communication, and a thorough understanding of each party’s expectations and capabilities.
Identify Potential Partners
Take the time to identify potential partners who share your vision and have the financial capacity to contribute to the project. These partners should display complementary skills, resources, or market access that can enhance the project’s chances of success. A solid track record and a reputation for honouring commitments can increase the proponent’s confidence.
Define the Project Scope and Objectives
Once you’ve identified potential partners, the next step is to define the scope of the project and the objectives you aim to achieve. This includes outlining the key deliverables, timelines, and milestones. Be clear about what each party expects to gain from the partnership and how success will be measured. A well-defined project scope helps prevent misunderstandings and ensures that all parties are aligned from the outset.
Draft the Funding Structure
The funding structure is a critical component of any co-funding agreement. It outlines how much each party will contribute, when the contributions will be made, and what the funds will be used for. Consider whether contributions will be made as lump sums, instalments, or in-kind contributions (such as providing equipment or personnel). It’s also important to agree on how any profits or IP generated from the project will be shared.
Terms and Conditions Apply
Negotiating the terms and conditions of the co-funding agreement involves discussing key aspects such as governance, decision-making authority, and dispute resolution mechanisms. Consider how decisions will be made, who will have the final say on critical issues, and what happens if one party fails to meet its obligations. It’s essential to address potential risks and challenges upfront and agree on how they will be managed.
Draft and Sign the Agreement
Once all parties have agreed on the terms, the next step is to draft the co-funding agreement. This should be done with the assistance of legal professionals to ensure that the contract is legally binding and enforceable. The agreement should clearly outline each party’s responsibilities, contributions, and the terms under which the partnership can be terminated. Once the agreement is finalised, all parties should sign the document, and it should be stored securely for future reference.
Case Study: Defence-Anduril Australia
One notable example of a co-funding agreement in Australia is the partnership between the Australian Department of Defence and Anduril Australia for early works on the Ghost Shark unmanned submarine project. This agreement is part of a broader initiative to enhance Australia’s defence capabilities through advanced technology development. Anduril Australia, a subsidiary of the US-based defence technology company Anduril Industries, is known for its cutting-edge autonomous systems and artificial intelligence-driven defence solutions.
On 5 August 2024, Defence Industry and Capability Delivery Minister Pat Conroy stated that the co-funding agreement will see Defence put in $20.1 million, on top of the $90.1m it already invested. Anduril will match Defence’s contribution, plus add more money. The money will help finance the construction of a local factory to build the first Ghost Shark production model, slated to be rolled out in 2025.
While the factory’s site location is unknown, Anduril aims to have it produce Ghost Sharks for the Royal Australian Navy (RAN) and international partners, plus a commercial variant. Forty-two Australian companies comprise the sovereign supply chain needed for the factory, and the contract is also aimed at building more local parts capacity for the project.
A joint undertaking of Anduril Australia,RAN, the Defence Science and Technology Group, and the Advanced Strategic Capabilities Accelerator, Ghost Shark is designed for underwater intelligence-gathering and attack missions, with its basic machinery originating from Anduril’s Dive-LD unmanned sub. The first prototype was introduced in April 2024 and is now undergoing tests, with two more on the way. The RAN is eyeing the Ghost Shark as a force-multiplier for its undersea operations, supporting the ageing Collins-class subs while preparing to acquire nuclear submarines under the AUKUS security alliance.
Conclusion
Given the challenges of business finance, no single company – even those with adequate financing to back it up – can embark on a venture without a partner that may contribute unique aspects or help fund it. Co-funding agreements are a way for businesses and organisations in Australia seeking to collaborate on projects that require significant financial investment and shared expertise.
The example of Defence’s co-funding agreement with Anduril Australia highlights how such agreements can lead to innovative outcomes that benefit all parties involved. As you consider entering into a co-funding agreement, remember that clear communication, mutual trust, and a well-drafted contract are the cornerstones of a successful collaboration.
DISCLAIMER: This article is for informational purposes only and does not supersede official business. AVANTE PARTNERS has no business interests with any company mentioned above. Please consult a financial advisor and business coach.
