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In Focus: Picking the Right Joint Venture Partners

Here are three tips to help construction firms use joint ventures to meet demand without increasing risk.

Q3 2023
Thanks to government supported efforts to bring certain manufacturing capabilities to the U.S., construction firms specializing in industrial projects are in for a busy few years. That’s particularly true of firms with experience building data centers, microchip and computer component production facilities, and all kinds of clean energy infrastructure. The only thing standing between businesses with relevant expertise and exponential growth may be access to sufficient labor resources. In the wake of the pandemic, residential construction interests adopted a novel solution to overcome this same challenge — the joint venture. Here are three tips to keep in mind concerning joint ventures.

Tip One: Know Your Worth
While backlogs remain strong in the short term, the long-term outlook for the residential and commercial sectors suggests their work may be drying up. In Marcum’s 2023 survey of construction business owners, nearly 10 percent of respondents reported interest in pursuing joint ventures, while 39 percent of respondents listed “seek new markets” among their top priorities.

The only thing standing between businesses with relevant expertise and exponential growth may be access to sufficient labor resources. With that in mind, industrial firms should recognize that they can add a lot of value as partners to contractors entering the industrial market. Those courted by commercial and residential contractors seeking partnerships should know their worth and keep in mind that they are in high demand as partners. With experience managing complex industrial projects, they’ll have a big advantage winning the major projects going out for bid over the next few years.

Tip Two: Know Your Potential Partners
It goes without saying, but make sure you sufficiently vet anyone approaching you proposing a joint venture.

A legal database like Westlaw is a great source on any organization’s history in court. The Better Business Bureau and reviews on search sites like Yelp or Google can be equally revealing. Search databases by business name, owner/operator, and key officials to uncover complaints and cases involving the organization and key employees. Maintain an open dialogue to determine whether these are run-of-the-mill matters, simple misunderstandings, or may constitute something more sinister.

Understand that you may be held responsible for any illicit activity associated with your joint venture, even if you aren’t aware of it. That’s why it’s extremely important to establish the bonafides of any partner before entering an agreement. Don’t sign with anyone until you’re satisfied the prospective partner has no history of participating in collusive bidding, material overcharging or substitution, questionable labor practices, ineffective supervision, or illegal payments. Industrial developers and construction firms stand to leverage their experience to engage partners and greatly expand their project capacity

Tip Three: Prepare to Push Paper
Entering a joint venture doesn’t change the day-to-day work but does require a lot of up-front preparation. Start the process by establishing a stand-alone entity created for a particular project. Get legal help forming the entity and formalizing the agreement. Having specialized help early could save you time and headaches down the road.

In Sum
Industrial developers and construction firms stand to leverage their experience to engage partners and greatly expand their project capacity — but only if they’re sharp and prepared for the road ahead.

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