Last edited 02 Aug 2018

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:

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:

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] Find out more

[edit] Related articles on Designing Buildings Wiki

[edit] External references

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?