by Mark Cobb
By statute and by discipline, every good lawyer must participate in continuing legal education. Recently, I participated in a very useful seminar which focused on joint venture contracting, and in the next few weeks, you can read about some of the great information we learned for those Georgia contractors who want to use joint venture contracts in Georgia.
What is a Joint Venture?
A Joint Venture (commonly referred to as a “JV”) is used to refer to two or more businesses which enter into a cooperative endeavor usually for a finite period or specific project (for example, to construct a particular building). It is possible for the parties in a joint venture to create a new, separate corporation, limited liability company, or partnership. But, it is also possible that the participants retain their individuality and operate collectively pursuant to a “joint venture agreement”. In either case, the parties in the JV share in the management, profits (and losses) and risks in accordance with the terms of their joint venture agreement or joint venture contract.
Why Georgia Contractors Should Consider Creating a Joint Venture:
There are many, many reasons why contractors may decide to join together in a short-term partnership in order to bid and build on Georgia construction projects. Some of the popular reasons for joint ventures include the following:
- The two business entities are in a better position to exploit potential opportunities under various federal set-aside programs;
- By themselves, a participant in a joint venture contract may lack the necessary resources to complete the project; however, by combining financial, physical and human resources in order to meet the challenges of a particular project, they may be able to successfully bid and perform under a construction contract;
- Joint Venture Agreements spread the associated risks between/among the JV participants; and
- Joint Ventures can be a useful vehicle for employing specific project delivery methods.
Naturally, there are advantages as well as disadvantages for creating joint venture contracting, such as:
Advantages of Joint Venture Contracting in Georgia:
- Joint Ventures are fairly easy and simple to implement; they are straightforward and a cost-effective means to combine resources;
- Because they are based upon Georgia partnership law principals, they are predictable;
- Joint Ventures and their governing documents allow a great deal of flexibility based upon the needs of the individual participants and the precise scope of the construction project;
- The limited scope–joint ventures are usually appropriate only on one construction project at a time; and
- Joint Ventures are a widely accepted vehicle on construction projects.
Disadvantages of Joint Venture Contracting in Georgia:
- Because Georgia partnership law applies, the participants have joint and several liability;
- Some participants are concerned about the sharing of trade secrets and processes;
- Joint Ventures add an additional layer of liability;
- Professional relationships with down-stream contractors as well as up-stream developers, architects and engineers must be managed; and
- There is a risk of potential philosophical differences or personality conflicts between the co-venturers.
Thankfully, a carefully crafted joint venture agreement can assuage many of these concerns; it is vital, however, that each of the parties to a JV Agreement and their attorney weigh all the risks and management issues in order to carefully draft the documents which will govern the joint venture during each phase of the project, from bidding to completion. In our next installment on Georgia joint venture contracting, we will stress the need for a quality, written contract between parties as well as the key issues that should be addressed in every joint venture agreement including the operational aspects, the internal management, risk allocation, and defaults and remedies available to the participants.
Please feel free to contact the construction lawyers at the Cobb Law Group if you are contemplating participating in a joint venture anywhere in the state of Georgia; we welcome comments from our readers regarding their experiences with joint venture projects.
To read Joint Venture Contracting in Georgia (Part II), click here.
To read Joint Venture Contracting in Georgia (Part III), click here.
To read Joint Venture Contracting in Georgia (Part IV), click here.
To read Joint Venture Contractingin Georgian (Part V), click here.