Joint ventures (JVs) are strategic business agreements between two or more firms to create a new entity for a specific pursuit. In a fully integrated JV, the companies involved share all risks, profits, losses, assets, and liabilities—offering great value to clients using progressive design-build (PDB) to deliver a project. In comparison to the more common contractor-led PDB teaming arrangement, JV teams can be better positioned to facilitate best-value decisions, reduce risk, streamline communication, and broaden expertise. Clients evaluating bidders for stand-alone infrastructure projects or full capital improvement programs (CIP) should consider the following ways that choosing a JV team may add value to their project:
1. Structure promotes “best for the project” decisions.
Many PDB teams are comprised of a general contractor (GC) serving in the role of design-builder, with an engineering firm subcontracted with the GC to perform design—a contractor-led team. While this structure offers a collaborative environment, situations arise where project solutions impact the individual team members in different ways. A solution that presents the best results for the project might have negative impacts on either the GC or the engineering firm in their segregated roles. In these cases, decisions can get murky, and differing objectives create conflicts within the team. While sharing both risks and rewards, a JV arrangement eliminates conflicting individual interests and fosters an environment in which decisions are made based on what is best for the project.
2. Shared risks and rewards elevate client interests.
JV teams generally work more efficiently and are better equipped to deliver a high-performing project on time and on budget. It’s no secret that construction is a high-risk business; the industry is heavily affected by things both in and out of the client’s control such as environmental factors, unforeseen conditions, supply chain issues, schedule delays, safety concerns, and contract disputes. JVs serve to relieve this pressure by creating opportunities to more efficiently share the risks and rewards associated with major construction projects. This creates a goal-oriented environment in which all parties involved have a common interest in the project’s success. JVs offer additional opportunity for risk management due to the increased financial strength and security obtained by sharing economic resources of the JV members. As such, JV’s typically have a more robust bonding capacity for larger and more complex construction projects that individual firms can’t match on their own.
3. Streamlined communication optimizes decision-making.
In a typical contractor-led arrangement, the GC executes a separate subcontract with an engineering consultant for design. Without a direct contractual relationship between the client and the engineer, this structure can create a wall that can stifle transparency and limit direct lines of communication between all parties. Rather than two separate contractual relationships, a JV serves as a single contractual entity formed by the GC and the engineer. The JV works collaboratively and efficiently with the client, and both the engineer and GC are engaged in every discussion and decision. The project is neither design led nor construction led; both are at the top line of responsibility and accountability, resulting in a team wholly committed to the success of the project.
4. Integrated teams broaden access to expertise and resources.
JVs are formed strategically to offer clients expanded services and market reach, in addition to access to specialized knowledge, finances, and other valuable assets. Where one company may lack experience and service offerings, the partnering firm can fill in the gaps and vice versa, effectively leveraging each other’s strengths to form a more comprehensive team. For the client, associating with multiple industry leaders (rather than one company) expands subcontractor and procurement networks for the project. As part of an integrated team environment, JVs are more likely to have the expertise needed to ensure compliance with regulatory requirements on water infrastructure projects. Technically complex projects also benefit from a wide range of in-house expertise offered by an integrated JV team.
This recent blog post also covers the potential benefits of a JV, and readers are encouraged to read both related perspectives.