Construction Industry Trends: Mitigating Risk Through Joint Ventures
In today’s tough economic environment, construction companies are finding it hard to weather the storm. In order to survive, companies have to look at new avenues for generating revenue which could mean heading into uncharted waters. Joint ventures can be a creative way for a company to work on projects that are too large for them to do alone, in a new geographic region, or a new type of project all together. Working in a new geographic region may require different tax filings, licensing, and labor pools you aren’t familiar with. Joint ventures can help mitigate risk by providing additional bonding capacity, risk sharing, additional resources, and the availability of new market areas.
In choosing a joint venture partner(s), it’s important to look at their culture and make sure its inline with yours. There are also other aspects of the joint venture you’ll want to consider:
- How many partners do you want to work with and at what levels
- How will the management responsibilities be defined
- How much capital will be contributed and when/how will profits be distributed
- Which partner will handle the billing and invoicing
- Who will be responsible for the overall accounting for the project
- What type of legal entity will the joint venture be: C-Corp, LLC, Partnership? The structure of the joint venture will also determine the type of accounting to utilize.
- What is the duration of the joint venture
- How will the project be bid: single bid or independent/comparison bid from each partner
- What are the bonding and insurance requirements
- How will subcontractors be selected
- Will the joint venture require an audit, review, or compilation
Establishing a joint venture requires careful consideration. It is also important to involve your trusted legal counsel and CPA when making these decisions. Anders is here to help, please feel free to contact us.