A recent article in the Nashville Business Journal equated a joint venture on a construction project to a marriage: "Want a successful joint venture? Think seamless."
The article offered several points of what should be addressed in the joint venture agreement before pursuing work:
- Address potential consequences. Parties should address the potential consequences of joining finances and forces for the joint venture. When disputes arise, how are the parties going to resolve them? What should the agreement say about permissible and prohibited activities, such as hiring away employees?
- Divide the duties. The agreement should clearly outline the respective duties of the parties, whether relating to performance of work, management, and decision making.
- Split the proceeds. The agreement should also address how the parties are going to divide the proceeds from the contract. This often depends on the investment of the parties, whether monetary and non-monetary.
- Contemplate duration. Remember that the joint venture generally lasts through the life of the project. It is important to consider warranties when contemplating the duration of the parties’ agreement.
The article not only speaks about matters of the mind (…the legal obligations of the joint venture partners …), it also recommends matters of the heart: "Experts agree that forming that seamless partnership is key in all joint venture situations." In other words, the success of the joint venture will often depend on the integrity, character, commitment and relationship of the parties, as opposed to simply the agreement between them.
This is more than legal mumbo-jumbo, particularly for highway and bridge contractors. At the federal level, there are contract set asides for companies certified under the Small Business Administration’s 8(a) program. At the state level, where most DOT work is allocated, each state and local transit agency must establish a goal for the participation of Disadvantaged Business Enterprises (DBE). Partnering with an SBA 8(a) or DBE contractor can meet these requirements.
But each state will have specific guidelines and requirements for joint ventures on projects. For example, Washington DOT has a set of pre-qualification guidelines (pdf) for what is required of joint ventures on their projects. Similarly, at the federal level, the FAA and the USDOT have issued a Joint Venture Guidance document (pdf) for DBEs. The real lesson is to make sure to explore and understand the legal requirements when you set out to establish a joint venture on a construction project, particularly if it involves minority participation.
Image: Belvoir Army Engineers