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Joint Ventures: Your Ticket to Bigger Projects

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You’ve paid your dues. You’ve created a successful contracting business, and for a number of years, you’ve gradually increased market share in your sector. You’ve also continually advanced in project complexity and size.  

And, now you’re stuck. You want to take on new delivery methods or much larger projects, but you don’t have the depth of experience or the bonding capacity to do it. But maybe there is a way you can have the best of both worlds?

A joint venture could propel you into the next era of business growth. 

Construction joint ventures continue to increase for a few reasons:

  • An increase in large, complex projects where no one party can handle all the risk (according to a 2015 FMI report there was over a 300% increase in projects worth over $1 billion from 2005 through 2014).
  • Globalization presenting new opportunities for firms to compete in foreign markets.
  • Construction companies increasingly using international joint ventures to enter new markets.

The Joint Venture Landscape

Indeed, many American companies have made international joint venturing a dominant aspect of their businesses. For example, Black & Veatch, a Kansas-based, 102 year-old engineering and construction company, has been working in Australia for 40 years on infrastructure projects. Its latest joint venture there is with Civmec, an Australian engineering and construction company, where the two will “upgrade and expand Western Australia’s largest wastewater treatment plant.” 

When you consider joint venturing, you have to pay close attention to the partners you sync up with, and how the project is structured.  

There’s also plenty of joint venture activity on U.S. soil. Balfour Beatty and Fluor Corporation are reconstructing Texas’ Southern Gateway. Chicago-based Riverside Investment & Development and Dallas-based Howard Hughes Corp. are working on what’s termed the tallest Chicago office tower since 1990. The joint venture construction team, Walsh/Granite, is leading construction on many of Pennsylvania’s fast-tracked bridge replacements. 

It used to be that joint ventures landed squarely in the laps of large firms, but according to FMI, that’s changing. Lower and middle market construction firms are now seeing greater opportunities with joint ventures. Again, increasingly complex projects, more risk, and greater owner demands fuel the trend of using joint ventures for project delivery. 

The Nature of the Beast

Companies structure joint ventures in a few common ways:

  • 65% are two-partner arrangements;
  • 26% have three partners;
  • 10% have four partners.

Project types break down like this:

  • 46% general building
  • 18% transportation
  • 16% water sanitation
  • 9% industrial and petroleum
  • 6% manufacturing
  • 4% hazardous waste
  • 2% power

Fixed-price bid contracts account for 55% of projects done under joint ventures. Cost reimbursable contracts account for 34%, and guaranteed maximum contracts account for 11%.

Are the Basics Lining Up With Your Goals?

When you consider joint venturing, you have to pay close attention to the partners you sync up with, and how the project is structured. 

Your most pressing need is to know how and why the joint venture helps your business. It’s easy to lose sight of your long term goals when you are dazzled by big ticket projects that promise to catapult you into the limelight. But, if it’s not going to advance your business goals, or worse, if it leads you down a sidetrack that dead ends, you’re better off avoiding it. So first up, know what your goals are and what you’re trying to accomplish from a long term perspective. Don’t depend on a joint venture to fulfill short-term business goals.

Know what your goals are and what you’re trying to accomplish from a long term perspective. Don’t depend on a joint venture to fulfill short-term business goals. 

Once you know that the venture is right for you, the next step is to make sure that the partner is right for you. Look at their financial strength, the nature of their banking relationships, history of safety records and quality records, and their surety relationship and bonding capacity.  You’ll also want to know their litigation history, and you definitely want to know about any pending legal issues. 

Can You Trust Them?

Keep in mind that joint ventures are partnerships. All partnerships that succeed rely on trust between the partners. If you don’t trust your potential partner, it’s probably a warning sign. If you are unsure, but willing to explore the possibility, you can enter into a pre-formation agreement. This is where you agree to work with the partner in assembling the assets, rights and entitlements necessary to form the joint venture partnership. In doing so, you’ll share the costs of that process as well as the duties needed. You’ll also determine the ownership of anything the joint venture creates.

Can You Work With Them?

Every company has its own established management style, processes, and culture. Every place where your processes and culture don’t line up with your partner’s will be a place of friction. Too much friction, and the partnership gets strained. And sometimes, the constant strain eventually breaks it. Get to know your partner’s management style, processes, and culture to see whether your two organizations will mesh well.

Can You Find Common Ground in Technology? 

Technology is increasingly becoming the great determiner of efficiency. You and your partner’s organizations will have to collaborate and share almost as if you were one. Where are they on their digital journey? Are they at about the same place as you, ahead, or lagging behind? If your partner is not using tablets in the field, but you are, there’s a good chance there’ll be a disconnect in collaboration. 

Set your business goals and then look for the joint venture that moves you in the right direction. 

But even if your technology journeys are at different places, it doesn’t mean all is lost. If the two of you are willing to adopt the same technology; for example, the same project management platform, then you can rapidly move beyond technological hurdles.

These days, joint venturing can fit any construction business and the ones that stay open to opportunities stand ready to take the advantage. Set your business goals and then look for the joint venture that moves you in the right direction. 

If you liked this article, here are a couple more you might enjoy…

Building a Collaborative Industry Culture

Improve Collaboration to Reduce Disputes

Break Free From the Iron Triangle

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