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 standalone infrastructure projects or full capital improvements 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 result for the project might have a negative impact 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 risk reduction due to more financial strength and security from their shared economic resources; they 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 stifles transparency and limits direct lines of communication between all parties. Rather than two separate contractual relationships, a JV team serves as a single contractual entity formed by the GC and the engineer. The JV team 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.
Clients benefit from selecting a JV team to build major water infrastructure projects and CIPs due to better decision-making, streamlined communication, reduced risk and broader expertise. JV candidates should be carefully vetted prior to entering into a legal agreement; contact Black & Veatch to learn how to select the ideal team for your project or CIP.
