Construction Joint Ventures--Essential 4Terms, Representation

• Author: By John I Spangler and Deborah Cazan
• Pages: 5-13

THE CONSTRUCTION LAWYER 5Volume 42 Issue 2 2022

JOINT VENTURES

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.

2

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

conict.

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

Losses

The respective ownership interests of the partners govern

John I. Spangler

Deborah Cazan