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
CLC Health, Safety and Wellbeing Strategy 2025
Launched by the Minister for Industry to look at fatalities on site, improving mental health and other issues.
One of the most impressive Victorian architects. Book review.
Common Assessment Standard now with building safety
New CAS update now includes mandatory building safety questions.
RTPI leader to become new CIOB Chief Executive Officer
Dr Victoria Hills MRTPI, FICE to take over after Caroline Gumble’s departure.
Social and affordable housing, a long term plan for delivery
The “Delivering a Decade of Renewal for Social and Affordable Housing” strategy sets out future path.
A change to adoptive architecture
Effects of global weather warming on architectural detailing, material choice and human interaction.
The proposed publicly owned and backed subsidiary of Homes England, to facilitate new homes.
How big is the problem and what can we do to mitigate the effects?
Overheating guidance and tools for building designers
A number of cool guides to help with the heat.
The UK's Modern Industrial Strategy: A 10 year plan
Previous consultation criticism, current key elements and general support with some persisting reservations.
Building Safety Regulator reforms
New roles, new staff and a new fast track service pave the way for a single construction regulator.
Architectural Technologist CPDs and Communications
CIAT CPD… and how you can do it!
Cooling centres and cool spaces
Managing extreme heat in cities by directing the public to places for heat stress relief and water sources.
Winter gardens: A brief history and warm variations
Extending the season with glass in different forms and terms.
Restoring Great Yarmouth's Winter Gardens
Transforming one of the least sustainable constructions imaginable.
Construction Skills Mission Board launch sector drive
Newly formed government and industry collaboration set strategy for recruiting an additional 100,000 construction workers a year.
New Architects Code comes into effect in September 2025
ARB Architects Code of Conduct and Practice available with ongoing consultation regarding guidance.
Welsh Skills Body (Medr) launches ambitious plan
The new skills body brings together funding and regulation of tertiary education and research for the devolved nation.
Paul Gandy FCIOB announced as next CIOB President
Former Tilbury Douglas CEO takes helm.
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?