Construction Joint Ventures- are they right for you?
Jerry Aliberti • March 11, 2024
Construction joint ventures and if they are right for you.
One way a company can address the labor shortage problem and reduce risk is by joint venturing.
A joint venture is when two companies team up and bid and eventually build a project as a partnership. I’ve always had mixed feelings over JV’s but with today’s changing management and skilled trade resource gap, it may be a good idea. Below are some pros and cons I feel related to JV’s.
Pros-
Increase workforce – Companies can combine their talent and resources. You can take on larger projects and meet project schedules more effectively with shared resources.
Access to specialized skills – Many projects have scopes of work that you’re not familiar with BUT your JV partner specializes in and they have the skilled trades that perform that work often.
Shared risk – Construction is very risky. If you plan on taking on a project that isn’t exactly in your comfort zone or wants to take on a larger project, you can now share the overall risk with your partner. Flexibility can also help you capitalize on new opportunities and market demands.
Cons –
Conflicts, disputes, and communication issues – I’ve heard horror stories of the big egos running the project bumping heads and nobody wants to meet on common grounds. Every construction company is run differently, and most people hate change. These differences need to be discussed at the very beginning and everyone needs to buy into the overall goals.
Increased complexity - Joint ventures introduce additional complexity to project management and coordination. Multiple companies with different priorities and objectives may lead to increased administrative and communication overhead.
Loss of Control and Profit: Joint venturing involves sharing control and decision-making with another company. This can result in a loss of autonomy and reduced influence over project outcomes.
Dependence on your partner – Project success relies heavily on the performance and commitment of your JV partner. If one partner underperforms or fails to fulfill its scope, it can have a negative effect on the overall project performance and both companies’ reputations.
Estimating comfort – I’ve worked on many JV estimates, and I always find more and more money is put in the project as the bid due date gets closer IF the contractors aren’t comfortable with each other. Guess what happens next, we lost the project because we couldn’t reach common ground even before the project started. Understand who you bidding with and get comfortable with each other in the early stages of bidding.
JVs happen all the time, especially with larger projects where contractors don’t want to put all their eggs in one basket. We discussed in this article construction joint ventures and if they are right for you. It has its place and can certainly be a possible solution to battle today’s labor shortage and reduce risk in your construction company.
They’re in the middle of their final push, closing out projects, chasing retainage, lining up crews for winter work, and squeezing every bit of revenue out of the year.
Over the past 22 years, I've been in enough contractor offices to spot it right away. Many $25-$50 MM million companies have good reputations, steady work, and crews that know what they're doing.
The Challenge So I'm talking to this contractor last week who runs a $60 million construction company, and he tells me he walked into his office Monday morning ready to finally call that developer who's been dangling a 2.5-year project in front of him. This thing is right up his alley, and he knows his team could absolutely crush it. But before he can even grab his phone, here come the interruptions. His project manager needs approval on a change order, his superintendent wants to switch concrete suppliers, and his estimator is asking whether to include some risky scope in a bid that's due today. By lunch, he'd fielded twelve decisions that, honestly, his team should be handling without him. Now my first question to him was about where his lower-level executives were in all this, but for today, I want to focus on something else entirely. Why are so many questions landing on his desk in the first place? Meanwhile, and as you guessed, that developer call never happened, and he's sitting there thinking, "I built this whole company so I could work on growing it, not so I could approve every material swap and schedule change." The Impact Here's the thing that's killing me about this situation. While he's stuck approving routine decisions, his competitors are out there building the relationships that land the next big contract. That developer I mentioned? He requires months of strategic relationship building, but my friend can't block out the time because there's always another operational fire to put out. His backlog should be growing, but instead, he's spending his energy on stuff that keeps him busy instead of stuff that makes him money. The brutal part is his team has gotten comfortable just asking him instead of thinking it through, because why take responsibility when the boss will just make the call for you? The Shift So here's something powerful I've been working on with my clients that you can start immediately, and I'm telling you, this will absolutely change how your business runs. Starting Monday morning, you and your key people are keeping a decision journal for thirty days. Every time someone comes to you with a question, write it down. What they asked, what triggered it, what you told them. Have them track the same thing on their end.
