Joint Venture Overview
 

The use of Joint Ventures in the construction industry has received increased popularity in recent years. Joint ventures assist contractors in distributing the risk on various projects. While joint ventures are generally used on larger projects, they have become a tool for emerging contractors to gain experience on projects that they would otherwise not have access to. This not only helps to increase the capabilities of the contractor, but it also reduces the likelihood of a default on projects.

For the purpose of the construction industry, joint ventures are the made up of two or more persons or organizations for the purpose of engaging in a business enterprise. Joint ventures are generally established for a single project; however they can be formed to allow the joint venture the ability to work on multiple projects. When a joint venture is formed, the amount of money, equipment and property is either contributed equally between the parties or in specified percentages by each party. A joint venture not only combines the money, equipment and property of each party, but also the skills and knowledge that each party possesses.

During the formation of a joint venture, a joint venture agreement must be created and signed by all parties involved. The agreement is put in place to ensure that all parties understand what the specific obligations of each party will be. The agreement details the manner in which the joint venture will operate (this includes cash flow, working capital contributions, personnel, equipment, etc.).

The reasons for establishing a joint venture can vary greatly; however some of the main reasons may include:

• Use of each partner’s skills and assets
• Increasing the amount of surety capacity available to the partner
• Increasing the financial strength of the partners for performance on a project

While joint ventures have proven to be successful in the construction industry, caution should be taken before entering into an agreement. A main consideration that must be taken into account when signed a joint venture agreement is that all parties involved in the joint venture are joint and severally liable for any default on behalf of one of the partners. Thus all partners are liable to any subcontractors, suppliers, third party claimants and sureties regardless of any provisions provided in the joint venture agreement. It is advised that any contractor wishing to enter into a joint venture agreement seek the advice of their attorney, bond/insurance broker and accountant before any agreement is made.