Joint venture for construction
A joint venture (JV) is a commercial alliance between two or more separate entities that enables them to share risk and reward. A new business is created to which each party contributes resources such as land, capital, intellectual property, skills, credentials or equipment.
Joint ventures are commonly used to:
- Enable smaller companies to deliver large projects by combining their expertise and resources.
- Enable a larger company to acquire new resources or expertise from a smaller company.
- Enable a smaller company to benefit from the credibility and financial stability of a larger company.
- Gain local knowledge in overseas markets.
- To share risks and costs.
Joint ventures are becoming more common, encouraged by initiatives such as PF2 (the most recent iteration of the private finance initiative) and the emergence of very large projects in the Middle East and Asia.
The structure of a joint venture will depend on the degree to which the parties wish to integrate. Typical structures for joint ventures are:
- Limited liability company: creates an entirely separate legal identity from shareholders.
- Partnership: equity is owned by two or more parties who are jointly and separately liable for all of the debts of the business.
- Limited liability partnership: liability for debts is limited to the amount of the investment.
- Contractual agreement.
It is important in structuring a joint venture to properly consider tax issues, particularly on a project such as an institutional Public Private Partnership (PPP) where a joint venture is established by a public authority and a private company which will have very different tax profiles.
A joint venture may be funded by equity funding, debt funding or loans from shareholders.
In 2012, a report by EC Harris warned that one in five UK construction joint ventures ends in a dispute between the parties. This was mainly as a result of:
- 'Failure to properly administer the contract.
- Failure to understand and / or comply with its contractual obligations by the Employer / Contractor / Subcontractor.
- Employer imposed change.
- Conflicting party interests.
- Incomplete and / or unsubstantiated claims.'
For joint ventures to function effectively, it is important that:
- There is a shared vision and ethos.
- The structure, resourcing and governance is clear from the outset.
- Efforts are made to build relationships between staff.
- Collaborative practices are in place, and ideally a collaborative contract type.
- The parties adopt common technology platforms.
[edit] Related articles on Designing Buildings Wiki
- Business administration.
- Business model.
- Cartel.
- Collaborative practices.
- Collusion.
- Company acquisitions in construction.
- Consortium.
- Construction organisation design.
- Construction organisations and strategy.
- Integrated project delivery (IPD).
- Midland Expressway Ltd v Carillion Construction Ltd & Others.
- Open shop construction.
- Partnering and joint ventures.
- Partnership.
- PF2
- PPP.
- Special purpose vehicles.
- Types of construction organisations.
- Vested outsourcing.
[edit] External references
- Construction Manager, Joint ventures, when twos better than one. 2013.
- Conject blog, One in five UK construction joint ventures ends in dispute – what can be done to prevent this?. 2013.
Featured articles and news
Heat pump announcements, what homeowners need to know
An 'ultimate guide to heat pumps' from a heating company.
Construction contract awards reach £7.1bn in February
Their highest level in seven months.
The journey to sustainability in heritage
Research is the key to better understanding.
Heritage approaches to adaptation, mitigation and loss.
Bridging the gap between policy, finance and installation.
Development on brownfield land
Definition, background, policy and the latest consultation.
With the Design Framework for Building Services.
Retrofit of Buildings, a CIOB Technical Publication
Pertinent technical issues, measures and the roles involved.
ECA joins HSE campaign to support mental health
Working Minds’ five simple steps based on risk assessment.
Mental health in the construction industry
Mental health issues in brief with related articles.
Transitional arrangements, Building Control and the BSR.
For pre-October buildings with substantial progress by April.
How to write an inspection and test plan
ITPs for quality control and assurance particular elements.
Why quality counts in domestic ventilation systems
From products, to systems to the installation.
Empowering the Future with CIOB Academy
Lifelong learning, upscaling, and reskilling for the built environment.
Winners of the 2024 ASBP Awards
Project, Product and Initiative according to the 6 pillars.
Comments
To start a discussion about this article, click 'Add a comment' above and add your thoughts to this discussion page.
my concern is how jv parteners share risks of bussiness. can these be clarified in its agreement?