Mind the gap...joint ventures
The Middle East’s buoyant market for infrastructure projects has seen a strong return to the trend for joint venture contracting. Whilst the region is quite familiar with joint venture set up and incorporation, the current approach is taking on a fairly laid back guise, particularly when it comes to the structure and operation of joint venture arrangements.
The question arises between contracting parties as to whether their joint venture arrangement should be formal or informal, and entered into on a corporate or non-corporate structure basis.
Successful joint venture partnerships aim to be collaborative, integrated, transparent and productive, with a focus on generating higher profits. The joint venture partners come together and accept that they can only achieve that by working together.
What we are seeing contractually in the market does not always lend itself to successful joint venture arrangements. Parties are often opting for the informal, non-corporate structure route. There are a number of key areas relating to fundamental aspects that do require attention, including:
- Due diligence/financial checks – who are we really doing business with?
- Entering into a contract detailing each party’s responsibilities including joint or shared resourcing and of course key decision makers from both sides of the JV.
- Procurement strategy that is joined up rather than 2 separate contractor proposals supplied in response to a tender albeit under one name.
- Risk assessment and monitoring – is this the right project for us as a JV? Is the project actually going ahead? Does the client have funding and will we get paid? Do we really have the joint expertise required?
The predominant reason behind the non-corporate approach points the finger at procurement. From the front end of projects across the region, government and private developers alike are leaving their invitations to tender (ITT’s) far too late. They impose short or wholly unreasonable timeframes on contracting parties to submit their tender proposals including confirmation of their joint venture arrangements. In some cases, joint venture partners feel they are being politically thrown together when ordinarily they would look to do business with another partner.
The rationale of “just get on with the job” means that joint venture partners are exposing themselves to unnecessary risks. They are failing to close out the structural and operational gaps that they usually would because they do not have time. Those gaps result in fractured joint venture relationships which ultimately impact on the success of project programmes, budgets and quality. On major infrastructure projects that poses a serious risk to corporate and directors’ liabilities.
This article was originally published by LexisNexis. For more information please contact Paul on +973 17 133212 or email@example.com