In today’s highly competitive business environment, many construction companies are venturing into unfamiliar territory and taking steps that haven’t been before considered. Some are exploring opportunities across state lines or international borders. Others are branching out into different, larger or more complex projects.
For many contractors — regardless of size — a joint venture or strategic alliance offers an opportunity to join forces with other construction companies to work collaboratively and to achieve business goals that one business couldn’t achieve on its own.
Differences and advantages
Joint ventures and strategic alliances have similar objectives, but they’re structured differently. Typically, a joint venture involves formation of a new legal entity, such as a partnership or limited liability company (LLC). A strategic alliance, on the other hand, is simply an agreement between two businesses to pool their talents and resources. Both offer many advantages to the partners involved, including:
- Additional manpower without the need to hire,
- Access to new markets,
- Pooling of talent,
- Availability of specialized capabilities, equipment, technology and qualifications,
- Ability to bid on larger, more complex jobs,
- Ability to spread risk among the members,
- Enhanced bonding and financing capacity, and
- Formation of new supplier relationships.
The most effective joint ventures and strategic alliances leverage members’ complementary strengths. In cross-border ventures, for example, a contractor with specialized skills or experience might join with an out-of-state company that offers an established local presence, knowledge of the market, and on-site labor and equipment.
Due diligence required
Before embarking on a joint venture or strategic alliance, it’s critical to vet prospective partners thoroughly. After all, you will be “sharing a check book” with them (shared risks and rewards). If your business partner fails, you’ll be responsible for completing the project. It’s also important to document the arrangement carefully to ensure that it has well-defined objectives, each party’s responsibilities are clearly spelled out, and both rewards and risks are fairly allocated. We have assisted many clients with these type of arrangement. Please do not hesitate to get us involved if you are considering a new joint venture or strategic alliance.
Partner, Construction Services Director