The Role of Joint Ventures in the Construction Industry

The Role of Joint Ventures in the Construction Industry

The value of new construction work in the UK continues to rise, as does the number of construction firms operating in the industry. In a competitive m

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The value of new construction work in the UK continues to rise, as does the number of construction firms operating in the industry. In a competitive market, joint ventures are often turned to as a way of broadening a firm’s portfolio and achieving access to more lucrative projects.

While larger construction firms often form joint ventures with overseas companies in an attempt to grow their company internationally, there are benefits to be had for smaller firms too. But what are joint ventures, what do they offer and what is it important to be aware of if you’re considering teaming up?

What is a Joint Venture?

A joint venture in construction is a temporary relationship formed between two or more parties in order to pool together the expertise and resources required to complete a project.

From capital investment to staff, equipment and even land, what each company contributes is crucial and can vary from one agreement to another. While their organisational and legal structure can also be set up in different ways, the risks and benefits involved in a project are typically shared between the parties involved in one aspect or another.

What Are the Benefits of a Joint Venture?

Joint ventures are always mutually beneficial. The key benefit is their potential to create and secure new construction projects that would be otherwise unattainable without the skills, resources or credentials of the other firms involved.

Other reasons to commit to a joint venture include:

  • Sharing risk and reward: The cost of starting new construction projects can be high. Sharing that risk between equally invested parties as well as the promise of splitting profits can provide added security for firms of all sizes when taking on new work
  • Diversification and cross-selling: Construction firms looking to diversify by sector or market can find themselves better placed to pitch, or even cross-sell services to existing clients
  • Gaining local knowledge: The insight of overseas organisations can be essential to expanding firms in understanding the intricacies of foreign construction markets
  • Mitigating the impact of a bad balance sheet: The most experienced of firms can be turned down for work due to financial difficulties. Teaming up with a better-placed organisation can secure a client’s confidence

What Are the Things to Watch Out For?

The structure and legal setup of a joint venture is crucial to its success. From integrated to non-integrated or combination ventures, they can be established in many ways, so it’s important to do your research and speak to asset management professionals before you sign anything.

Most of all, it’s essential that your business is comfortable with the structure and compromises involved in the agreement as well as who is responsible for doing what. It’s also common for one party to be responsible for governing the venture, and this firm should be capable of dealing with any issues that arise quickly and fairly.

Join ventures have been known to fail when communication breaks down between the parties involved or when contracts have not been fully thought out. Nevertheless, they remain an attractive and rewarding option when executed correctly.