03 Aug 2020
At one time or the other, you might have entertained the idea of creating a Joint Venture with another construction team. This way, you can take on a larger project by combining your expertise and resources.
What are the things to look out for when creating a joint venture with a construction team? How do you create a mutually beneficial agreement with the team? These and more are what we expound in this article.
A Joint Venture is created when two teams get together to combine their resources and skills for a much larger project. They each have expertise in different areas and come together to have a mutually beneficial relationship.
E.g. a construction team with cash constraints and a wide client network can choose to join forces with a team that has more capital but lacks a network of potential clients.
These resources are not limited to monetary capital alone but include intellectual property, credentials, equipment, and land.
Things to Note when Creating a Joint Venture
It is important to create a Joint Venture with a proper structure from the onset. Collaborative practices should be implemented for Joint Ventures to function effectively.
Here are things to note when creating a Joint Venture:
There should be a shared vision by both parties.
Background checks should be carried out for both teams. Ensure to examine their financial strengths, relationships with financial institutions, projects they have worked on in the past, and their culture.
Decide on the duration of the Joint Venture and the exit plan. We advise that you take on short-term projects with Joint Ventures as each teams’ priorities are prone to change with time.
Have a mutual agreement on the type of venture to create. Both teams can decide to execute a project, and split the profit into pre-agreed shares, or a team gets an interest when they provide the capital for a project.
It is also advisable to create a Joint Venture with a team that has worked on many projects. They have tested different models, and have chosen to stick with a model that is cost-effective and more efficient. They also have made mistakes and are sure of what would work in a particular situation.
Joint Venture Agreements
Have you given much thought to whether you need a Joint Venture? Let’s see what an agreement should contain:
Clear Deliverables of each Team: Decide on which team will handle what. You have to define the responsibilities of each team, so resentment doesn’t creep up at a later time. Which team would provide the finances, deal with the legal team, manage the project? Outline these deliverables in your agreement.
Note the Percentage Split or Interest Rate for your Projects: As mentioned earlier, both parties should agree on the best way to structure the Joint Venture. Ensure to explore all available options, and what would work best for both teams.
Now that you are ready to create a Joint Venture, we are sure you understand everything you should about drawing up an agreement, and the necessary steps to take in the process. Ensure to have the right conversations with your network to find out what other construction teams have done in the past, and adjust it for your deals.
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