As contractors may mitigate the risks of joint companies

This feature is a part of the “The Dotted Line” series, which has a thorough look at the complex legal landscape of the construction industry. To see the whole series, Click here.

The crews placed the final steel beam above the Buffalo Bills Stadium of $ 2.1 billion In Orchard Park, New York last month a project supervised by a joint company between Gilbane and Turner. In Los Angeles, a JV directed by Stacy and Witbeck, FlatIRON WEST and Modern Ferrocarril System 668 million dollars of Line G Bus Review.

These two projects are only the latest examples of how joint companies are used to deliver complex projects and billionions across the country. When forming a JV, companies can combine resources to take on a single project together.

This allows members to group the capacity of link, labor and technical experience. This collaboration is gaining traction as the project size and complexity continue to grow, said Mason Hester, Munsch Hardt’s lawyer, based in Dallas.

“As an example I have seen in mass projects of point where a payment and performance deposit with a very high amount of dollar is required for the criminal sum of the deposit, it would be very difficult to find a single main contractor with the capacity of link to provide this deposit,” said Hester.

These agreements, however, must be carefully structured to avoid expensive disputes and should explain the specific roles that each participant will play in order to maximize the chances of success, according to lawyers.

In a case that Hester managed, for example, a vague contract caused a costly legal battle on whether the disagreement had to be manipulated at court or through arbitration and if the joint company’s officers were subject to those same terms. This kind of ambiguity, he said, could have been avoided with a clearer language from the beginning.

“A well -written JV agreement can often eliminate, or at least significantly reduce, confusion, headaches and legal expenses that may result from a badly written JV agreement,” said Hester.

Who does what?

A strong JV contract should begin by clearly defining the roles of each company.

Most JVs are governed by a joint company agreement, or JVA, which describes the divisions of benefits, work areas, dispute resolution processes and departure strategies, said David Podein, a member of Haver Law based in Miami. In some cases, especially in real estate developments, a letter of intent comes first to eliminate the initial terms before it was a formal agreement.

“The roles should not be determined once the company has been formed,” Podein said. “The determination of roles and responsibilities occurs during the negotiation stage.”

In the JV focused on construction, the division often depends on the complementary skills, said Laura Fraher, a member of Barclay Damon, a law firm based in New York. One company can provide knowledge of geotechnical engineering, while the other provides general construction capacity.

“Many times a joint company is formed between two parts because they have different areas of expertise and in these circumstances the division of labor is quite obvious,” said Fraher. In circumstances in which the division of labor is not so obvious, “the work must be divided cooperatively between the parties based on considerations such as the strategy, strengths and the availability of resources,” said Fraher.

Will you marry me?

This dynamic is why JVS are often known as a “marriage of comfort,” said Hester. But, like a romantic union, these collaborations do not always go well.

“Much of this can be reduced to personalities and approaches to management and their capacity, or their lack, to have a focus on working with the other JV members,” Hester said. “In contrast to throwing the other JV member under the bus.”

Because the JV is often responsible for the issues raised during the project, the owners do not need to show which partner was to blame, only that the JV made a mistake. Therefore, if a member points to his fingers, he opens the door for the owner to maintain the responsibility of the entire JV.

“It is up to the members of the JV to find out which of them is responsible for any or all this payment,” said Hester. “The assignment of which is detailed in a well -prepared JV agreement.”

Lock resolution tools

To avoid these scenarios, many JV contracts include level resolution processes, such as demanding that higher leaders meet before riding mediation or arbitration, Podein said. Some also establish internal review boards composed by company executives, said Trent Cotney, partner and co-leader of the construction team in Tampa, Florida, Adams and Reese office.

“We spend a lot of time on the plate and control and reflect it in the contract,” said Cotney. “The goal is to be fast and efficient.”

Boards like these are especially important in 50/50 companies, where blockages are most likely. For this reason, Cotney said that these agreements must have a clear disposition of dead -point resolution.

Ben elaborate JV agreements often include purchasing purchasing provisions, which allow one to buy the other in case of a dead man, Podein said. Other key clauses include terms that regulate capital calls, profit distribution, linking responsibilities and completion procedures.

With the methods of designing design design and the increasing mass megaprojects, joint company contracts will not disappear at any time, Fraher said. In order to work better, the parties need to establish rules early and fulfill their responsibilities in a coherent way.

“Joint companies are becoming more and more common as projects grow in complexity and reach,” Fraher said. “The most important thing is that the division of work is agreed in advance and is well documented to prevent future disputes.”