Entering into a joint venture with the right partners, for the right reasons, can mean the difference between winning new business or missing out on potential opportunities. While additional time and resources are required along with careful planning, joint ventures can provide strategic and proactive opportunities by allowing contractors to pool their resources and accomplish what they might not otherwise have been able to on their own.

A joint venture is separate from any other business interests in which two or more parties are involved. It has its own assets, resources, and management control. Generally, if a project fails, assets outside of the joint venture aren’t at risk – provided the entity is structured correctly and the reason for failure doesn’t involve any participating party’s negligence.

Advantages

Entering into a joint venture enables contractors to combine their knowledge, skill, and finances with other companies to successfully win larger contracts.

Joint ventures can also be used to mitigate risk on contracts of a “normal” size to a company, to bring in specialty knowledge for a project that may involve technical issues they are not familiar with or in a geographic area the contractor doesn’t normally operate in and doesn’t have good working knowledge of. Risk mitigation, along with the potential for obtaining new contracts, makes these arrangements especially appealing.

Increased Bonding Capacity

The maximum amount of credit a surety company will provide a contractor for a specific contract is referred to as bonding capacity. This amount is heavily influenced by the quality of the contractor’s employees, its financial health, and experience.

One of the best ways for a contractor to increase its bonding capacity is to partner with another contractor that has better metrics in one or more of these areas.

If a contractor has demonstrated success on a $10 million contract, for example, a surety won’t necessarily assume that it will be successful on a $50 million job. However, that company could increase its bonding capacity through a joint venture with another contractor with success on contracts of a similar size and scope.

Project Risk Mitigation

Since a joint venture is its own entity – complete with its own assets, resources, and management control – each joint venture shares in the risk associated with the project. The proportionate level of risk each joint venture partner is subject to is often in line with their ownership interest in the joint venture; however, that is not always the case. This is one of the main reasons why even large construction companies still create joint ventures for megaprojects.

Synergy with Partners

Even if a single contractor is willing to take on the risk of a larger contract and has the bonding capacity to do the work on its own, that contractor still may not possess all of the specialized skills necessary to complete the project. Partnering with contractors that possess complementary skills allows construction companies to successfully win and complete contracts that are normally out of their purview.