The construction industry is witness to some fascinating developments, particularly around trophy properties in prime US coastal cities.
Within the US –and California particularly- we’re seeing a large number of reputable, experienced contractors banding together to pitch and win construction contracts on trophy properties. Companies that once ferociously competed have joined forces under Joint Venture Agreements, looking for the synergies that will win contracts on highly valued office towers, residential buildings and mixed-use developments.
One good example of a construction joint venture is found in the San Francisco mixed-use development at Ocean Center. Major contractors Swinerton and Webcor formed a joint venture to win the contract for this landmark city project. Their success is leading both companies as well as other firms to consider JV pitches for major developments across the United States.
Construction joint ventures are not without risk. Companies considering a partnership with a competitor have several issues to consider:
- What will be the form of the JV entity impact upon construction contracts? Who has the authority to speak for all the JV partners when it comes to the contract?
- Does the Joint Venture have any required JV contractor licenses that are required in some states?
- The complexities of covenants between the JV partners and how they affect the agreement between the JV and the owner/developer.
- Who in the JV has signature rights? Change orders often require quick decisions to avoid project scheduling problems.
- Who is keeping the books? Accounting records should be on an ‘open book’ basis, available for inspection by the partners or members of the joint venture, the owner/developer or the owner’s construction manager.
- Will the JV self perform work through its partners subsidiary organization and how will that be priced.
- Will the need for cost expectation bar JV partner contractors from charging the owner/developer for costs and fees each JV partner has agreed to absorb due to the terms of the JV agreement.
- Will project insurance require policies to name all the JV entities, particularly if partner contractors use their own forces at the construction site. How will subcontractor liability insurance work on the Project.
- Are there to be limitations on the owner/developer requirement that the JV partners agreement to joint and severally liable for the full completion of the work and for all obligations and liabilities under the terms of the construction documents.
- How will any requirement for owner/developer indemnity protection from the JV to extend and bind the JV partners be handled.
- In dispute resolution which is more complex when a construction JV exists will the JV partners agree that only one firm or attorney should represent them, simplifying the dispute resolution process.
Reputations are made in the construction of trophy properties. They also carry a corresponding financial risk and bonding requirement that may be beyond the capability of a single company. Joint Ventures in the construction arena address these concerns from the contractor side of the equation.