Joint Venture agreements are common in construction, because they allow firms with varying specialties, experiences and resources to come together to meet specific requirements of a construction project. Where a project may have been impossible for a party to complete alone, the combined effort makes it more feasible.
Investing in a joint venture with another contractor can be an appealing method to take on larger, more profitable jobs while effectively managing risk. JV’s allow firms to “partner” to bid on and complete larger jobs for which a single firm may not have the necessary experience or risk profile; both companies benefit because risks and costs are shared.
A joint venture is organized as a separate entity and can either be created to bid on a singular project or to function with an indefinite life. For the contractor, investing in a joint venture has certain advantages.
- Ability to bid on larger construction projects.
- Ability to partner with minority-owned firms.
- Access to specialized knowledge.
- Allows companies to pool their financial resources.
- Risk is spread evenly across the participants.
Before entering into a JV agreement for a construction project, several important considerations should be made. Keeping these considerations in mind will help ensure your JV’s success.
- Pick the Right Partner – Picking the right partner involves the ability to work well together and the candidate’s financial strengths, safety records and history of successful projects.
- Evaluate Potential Liability – Parties must take special care to ensure that they do not inadvertently take on unwanted liability through their conduct.
- Define Dispute Resolution Process – Define the dispute resolution process, including potential arbitration or mediation.
To ensure your risks are balanced, we recommended contacting a construction attorney to have your joint venture contract drafted. The contract should address the management of funds and outline duties for everything from supply management to day-to-day operations.
A successful joint venture is one where parties share and understand the vision of the project. Trust must be established between partners and strong leadership must be in place. Collaboration is needed to build a solid relationship and manage resources. For a joint venture arrangement to be successful, trust and communication is key.