Construction Joint Ventures--Essential 4Terms, Representation

AuthorBy John I Spangler and Deborah Cazan
THE CONSTRUCTION LAWYER 5Volume 42 Issue 2 2022
Construction Joint Ventures—
Essential Terms, Representation
Issues and Potential Claims
By John I. Spangler and Deborah Cazan
Joint ventures are common
in the construction industry.
Contractors enter joint ven-
ture agreements to join forces
with other contractors to pur-
sue a particular project or type
of project. One contractor
may provide the nancial heft
needed to perform the project,
while the other contractor may
have a valuable relationship
with the owner, local subcon-
tractor connections, or expertise
with a particular type of work.
By forming a joint venture, the
contractors pool their expertise,
resources, and nancial where-
withal to jointly perform the
project and share the resulting
benets and risks.
A joint venture is dened as an undertaking by two
or more persons or entities jointly to carry out a single
business enterprise for prot.1 The essential elements of
a joint venture are (i) the intention of the parties to be
associated as joint venturers; (ii) mutual contribution to
the joint undertaking through a combination of prop-
erty, nancial resources, effort, skill, and knowledge;
(iii) a measure of joint proprietorship and control over
the enterprise; and (iv) the sharing of prots and losses.
Joint venture agreements can be oral,3 but oral agree-
ments may be unenforceable under the statute of frauds
if the contract term is more than one year, or the com-
pletion of performance is not possible within one year.4
For a host of reasons, a written joint venture agreement
should be entered addressing the essential elements of
the agreement.
A joint venture usually involves a single business trans-
action, whereas a partnership may involve a continuing
business relationship for an indenite or xed period of
time. From a legal standpoint, both relationships are vir-
tually the same, and courts apply partnership law when
evaluating the duties of joint venturers.5
As with much else in construction, front-end planning
for joint ventures is essential and prevents unwelcome
disputes. Before joining forces, the proposed venture
members should undertake appropriate due diligence
to understand each other’s nancial situations and
performance capabilities. Unanticipated nancial or
performance issues can threaten the entire venture, par-
ticularly if the project is set up with each of the partners
responsible for discrete work scopes. Equally important
are cultural and personality issues, alignment of expecta-
tions, and a consistent approach to project management.
It also is essential that the joint venture agreement
and the underlying construction contract are consistent.
This can become an issue if the joint venture agreement is
entered into before the construction contract is awarded
and the terms of the two documents end up being in
This article addresses some of the essential terms of
any joint venture agreement, followed by a discussion of
representation issues for consideration by counsel rep-
resenting venture members, and then addresses some of
the more common types of claims asserted by venture
members against each other.
Essential Terms of Joint Venture Agreements
The Scope of the Venture
Joint ventures are typically entered to pursue a particu-
lar project; accordingly, the joint venture agreement itself
should clearly state that the joint venture is being created
for the limited purpose of pursuing, negotiating, and per-
forming a particular construction contract for a specic
owner and for the construction of a specic project. If
the partners intend to exclusively pursue the identied
project as venture partners, the agreement should pro-
vide that no partner shall submit a bid or negotiate or
become bound to enter a contract for the construction of
the project in its own name or for its own benet without
rst providing the joint venture the opportunity to pur-
sue the opportunity.6
The right of the partners to pursue other projects out-
side of the joint venture should also be addressed. If there
are no limitations on non-venture activity, then the agree-
ment should so provide and clearly state that there is no
intention to limit or otherwise restrict the rights of the
partners to pursue other business opportunities.
Ownership Interests and the Sharing of Prof‌its and
The respective ownership interests of the partners govern
John I. Spangler
Deborah Cazan

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