Four Benefits of Forming Joint Ventures to Pursue Major Projects
by Ava Sand
Joint ventures are strategic legal agreements between two or more firms to create a new entity for a specific pursuit. The American Institute of Architects (AIA) joint venture contract documents are intended to outline mutual rights and obligations for these business agreements. The parties may be multiple general contractors, multiple architects, or a combination of the two. A legal joint venture is a commitment step above a typical design-build team. In the context of this article, we are referring specifically to the benefits of a general contractor-architect joint venture team.
In a fully integrated joint venture, the general contractor and architect share all risks, profits, losses, assets, and liabilities. Joint venture teams are better-positioned to facilitate best-value decisions, reduce risk, streamline communication, and broaden expertise. When building your A/E/C team to pursue a major project, consider the following ways that legally partnering with another firm will add value to your proposal.
1. Structure promotes “best for the project” decisions
Many design-build teams are composed of a general contractor serving in the role of the legal design-build entity, with an architect and engineering firms subcontracted underneath them – a contractor-led team. While this structure still offers a collaborative environment, situations arise where project solutions impact the individual entities in different ways. A solution that presents the best result for the project might negatively impact either the general contractor or the architect 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 joint venture 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
Joint venture 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 your team’s control, such as environmental factors, unforeseen conditions, supply chain issues, schedule delays, safety concerns, and contract disputes. Joint ventures 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. Joint ventures offer additional risk reduction due to more financial strength and security from their shared economic resources; they typically offer a more robust bonding capacity for larger, 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 general contractor executes separate subcontracts with the architect and engineering consultants for design. This structure can create a wall that stifles transparency and limits direct lines of communication between all parties. Rather than multiple separate contractual relationships, a joint venture team serves as a single legal entity formed by the general contractor and the architect. The joint venture team works collaboratively and efficiently with the client, and both the general contractor and architect are engaged in every discussion and decision. It also allows for this collaboration to begin as early as possible in the project development timeline, mitigating constructability issues before they arise in the field. 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
Joint ventures are formed strategically to offer clients expanded services, market reach, 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 well-rounded 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, joint ventures are more likely to have the in-house expertise needed to address technically complex projects.
Project bidders and their clients benefit from forming joint venture teams to build major projects due to better decision-making, streamlined communication, reduced risk and broader expertise. Of course, joint venture candidates should be carefully vetted prior to entering into a legal agreement. Consider a general contractor-architecture joint venture for your next project pursuit; emphasizing these client-centered benefits is sure to make your proposal stand out from the rest.
Ava Sand serves as Director-at-Large for the SMPS SFBAC Communications Committee. She is a Solutions Marketing Manager at Black & Veatch, a global leader in engineering, procurement, and construction. Ava is responsible for strategizing content marketing for various Black & Veatch solutions including data centers, construction management, and design-build project delivery. Connect with Ava on LinkedIn!
