a joint venture to be or not to be that is the question

© Steve Tennant Consultancy Ltd 2001 1

A Joint Venture: To Be or Not to Be? That Is the QuestionBy Steve Tennant FInstCES

A Joint Venture: To Be Or Not To Be? That Is The Question


Mind Reader?§ Think of a whole number from 1 to

10§ Multiply that number by 9§ If the number is a 2-digit number,

add the digits together§ Now subtract 5



Mind Reader? (Cont’d.)§ Determine which letter in the

alphabet corresponds to the number you ended up with (example: 1=a, 2=b, 3=c, etc.)

§ Think of a Country that starts with that letter



Mind Reader? (Cont’d.)§ Remember the last letter of the

name of that Country § Think of the name of an Animal

that starts with that letter § Remember the last letter in the

name of that Animal



Mind Reader? (Cont’d.)§ Think of the name of a Fruit that

starts with that letter § Think of the Animal in the Country

eating the Fruit



Mind Reader? (Cont’d.)§ Are you thinking of a Kangaroo in Denmark eating an Orange?



What Is a Joint Venture?§ An Apology to William Shakespeare

§ "To be, or not to be,--that is the question:--Whether 'tis nobler in the mind to suffer The slings and arrows of outrageous fortune Or to take arms against a sea of troubles, And by opposing end them?"

From Hamlet, Prince of Denmark – 1601 Act III. –Scene 1. – Rows. 56-61



What Is a Joint Venture? (Cont’d.)§ Definitions

§ There is no generally accepted definition, under Hong Kong Law of a Joint Venture!

§ Form§ a group of individuals collaborating§ one or more individuals collaborating with one or more corporate bodies

§ a group of corporate bodies collaborating



Why Joint Venture?§ Reduce Competition§ Obtain or retain a Strategic Resource§ Profitably utilize Byproducts§ Overcome Market Entry Barriers§ Prevent Entry of New Competitors§ Share Investment Cost and Risk



Selecting a JV Partner§ Do they possess required resources & capabilities?§ What is their position?§ How exclusive is their access to resources?

§ What is the extent of their capabilities?§ What is their financial condition?



Selecting a JV Partner (Cont’d.)§ Is their approach to business compatible with ours?§ What is their approach to business ethics?§ Do we have an existing relationship?§ What is their attitude to risk?§ How do they make decisions?§ Is the size of our business significant in relation to theirs?

§ Do we have managerial compatibility with them?



Selecting a JV Partner (Cont’d.)§ What is their motivation and commitment to success of the JV?§ What is their strategic benefit?§ Will they share control over their contributed assets?

§ What is the extent of the financial commitment they are willing to make?

§ How hungry are they?



Unincorporated Joint Venture§ Does a Partnership Exist?

§ Question of Law and of Fact§ The Partnership Ordinance

§ Tax§ Treatment

§ Joint and Several Liability§ To whom?



Incorporated Joint Venture§ Limit of Liability

§ Parent Company Guarantee§ Tax

§ Treatment§ Dissolving Company

§ Cost



Is a Sub-contract a Joint Venture?§ A Sub-contract or a Sub-consultancy is a Contract for Services§ No shared control§ No shared risk§ No shared profit



What Is Usual in Construction?§ Employer Organizations

§ Usually Incorporated§ Contractor Organizations

§ Usually Unincorporated§ Consultant Organizations

§ Usually Unincorporated



A Large Scale Contractors JV§ Distinction of Roles§ Joint Venturer

§ Responsible Joint Venturer

§ Party E

Main Joint Venture(Joint Venture Agreement)

PartyA

PartyB

PartyC

PartyD

PartyE

Joint Venture Supervisory Board

Project Management Organisation

ResponsibleJoint

VenturerA

ResponsibleJoint

VenturerB

ResponsibleJoint

VenturersC & D

Sub-Joint VentureAgrement

Sub-Joint VentureSupervisoryBoard

Party C Party D

Sub-Joint VentureProject

ManagementOrganisation

Sub-ContractorsSuppliersManufacturersPlant HirersConsultants


ResponsibleSub-JointVenturer C

ResponsibleSub-JointVenturer D



Sub-ContractorsSuppliersManufacturersPlant HirersConsultantsInsurersBondsmanOther Common Services & Facilities

Sub-ContractorsSuppliersManufacturersPlant HirersConsultantsOther Common Services & Facilities

Joint Venturer's

Responsibilities

Responsible Joint

Venturer's

Responsibilities



Joint Venturer’s RoleMain Joint Venture

(Joint Venture Agreement)

PartyA

PartyB

PartyC

PartyD

PartyE

Joint Venture Supervisory Board

Project Management Organisation

Sub-ContractorsSuppliersManufacturersPlant HirersConsultantsInsurersBondsmanOther Common Services & Facilities

Joint Venturer's

Responsibilities



PM Organization FunctionsName

Project Director

NameConstruction Manager

(Deputy PD)

NameHealth & Safety

Manager

NameCommercialManager

NameProgrammingManager

NameQuality Assurance

Manager

NameTemporary Works

Manager

NameEnvironmentalManager

NameCo-ordinationManager

NameAdministrationManager

§ Preparation &Maintenance ofSafety Plan

§ Implement CompanySafety Policy

§ Safety Training§ Safety Inspection§ Internal Safety Audit§ Safety Committee§ Job Hazard Analysis§ Accident / IncidentInvestigation

§ Safety Reporting /Statistics toEngineer, HeadOffice and others

§ Site Hygiene§ Training of JuniorStaff

§ EnvironmentalProtectionDepartmentSubmissions

§ Monitoring andReporting onEnvironmentalcompliances

§ Environmental ActionPlans

§ Training onEnvironmentalMatters

§ Training of JuniorStaff

§ Quality AssurancePlan Implementation

§ Non ConformancyReporting

§ Document / RecordsControl

§ Q/A Training§ Internal Audits§ Training of JuniorStaff

§ System WideConsultants

§ Interfacing CCContractors

§ Detailed DesignConsultants

§ Railway OperationsSystem - WideContracts

§ Special PurchaseContractors

§ Supply-InstallContractors

§ HKSAR GovernmentDepartments

§ Hong Kong RailwayInspectorate

§ Utility Undertakers§ Traffic Diversions§ Statutory Approvals,Consents andPermits


§ Managing otherManagers

§ Preparation ofMethod Statements

§ Preparation ofMaterialsSubmissions

§ Preparation of Sub-Contractor ApprovalSubmissions

§ Monthly Report toEngineer

§ Setting Out§ Management ofContractor's Plant &Equipment

§ Heading up of SiteProduction TeamsincludingFoundations,Structures, E&M andArchitectural BuildersWorks & Finishes

§ Site Security

§ Works Programme§ 3 Month RollingProgrammes

§ Monthly Programmes§ Other ProgrammesSchedules andReports as requiredby Project Director /Deputy PD

§ Progress Monitoring /Reporting /Forecasting

§ Payment Milestonesand Key DatesReporting /Forcasting

§ Submission StatusScheduling

§ Integration of CIPand TRIP and otherEngineer issuedProgrammes (ifissued) into WorksProgrammes


§ Payment Applications§ Measurement &Valuation ofVariations

§ Final Account§ Arrangement &Monitoring ofInsurances

§ Insurance Claims§ Sub-Contract TenderEnquiries

§ Sub-ContractPreparation andAdministration


§ Site Administration§ Personnel§ Site Purchases§ Petty Cash§ Book Keeping§ Stores§ Training of JuniorStaff

§ Design of TemporaryWorks

§ Checking ofTemporary WorksDesign

§ IndependentChecking Engineer'sDesign CheckCertificate

§ Checking of Erectionof Temporary Works

§ IndependentChecking Engineer'sApplication of Loadto Temporary WorksCheck Certificate

§ Checking of Removalof Load BearingTemporary Works

§ Temporary WorksDesign & CheckingSubmissions toEngineer




Responsible Joint Venturer’s RoleResponsible

JointVenturer

A

ResponsibleJoint

VenturerB

ResponsibleJoint

VenturersC & D

Sub-Joint VentureAgrement

Sub-Joint VentureSupervisoryBoard

Party C Party D

Sub-Joint VentureProject

ManagementOrganisation



ResponsibleSub-JointVenturer C

ResponsibleSub-JointVenturer D



Sub-ContractorsSuppliersManufacturersPlant HirersConsultantsOther Common Services & Facilities

Responsible Joint

Venturer's

Responsibilities



Pre-bid Agreement§ Exclusivity§ Confidentiality§ Expenses during Tender Preparation§ JV Leader§ Form of JVA to be substantially as per attached specimen

§ Agreement of Tender§ Termination



Joint Venture Agreement§ Should satisfy Requirements of Tender Documents

§ When does Agreement become Effective?§ Joint and Several Liability



Joint Venture Agreement (Cont’d.)§ Identify Participants and Participation§ Identify Management and Methods of Control

§ Decision Making & Breaking of Deadlock§ Sign or Seal



Common Problems§ Battle of the Forms

§ Neutral Drafter§ Leader or Sponsor Fee

§ What are Sponsor’s duties?§ Decision Making

§ Unanimous?§ Majority?



Common Problems (Cont’d.)§ Dispute Resolution and Applicable Law

§ Follow Main Contract?§ Use of JV Facilitator§ Mediation

§ Dissolution of JV§ Finishing off outstanding matters



Less Common Problems§ USA

§ Foreign Corrupt Practices Act, 15 USC section 78dd-1,2

§ Prosecutions§ Recorded against each Joint Venturer



Conclusion“The Joint Venture is the most flexible instrument for making fits out of misfits. It will become increasingly important. It is at the same time the most demanding and difficult of all tools of diversification and the least understood.”Peter Drucker, Management: Tasks Responsibilities and Practices 1974



The End

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