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Warning over rising joint venture disputes

25 February 2020 | By Will Mann

Joint venture construction projects cost more, take longer to deliver, and lead to a rise in disputes, according to new research. 

The study by law firm Pinsent Masons found that the proportion of disputes involving a JV caused by an issue related to the venture is over 30% of cases in the UK and over 40% of cases in both Asia Pacific and the Gulf Region.

Common factors for disputes include poor leadership, data ownership, and a lack of common identity and willingness to embrace new culture, the research found.

Previously, a study by Arcadis in 2015 said that a third of construction JVs resulted in a dispute.

On the back of the research, Pinsent Masons has launched a new guide – Joint Ventures: Delivering Global Mega Infrastructure Projects – which it said “will help JVs deliver more consistently, more efficiently and more sustainably than ever before”.

The law firm added that the number of global mega infrastructure projects delivered through JVs, such as HS2 in the UK, is set to increase, “with scale and stimulus measures likely to be driven by China”.

Vincent Connor, head of Pinsent Masons' Hong Kong office, said: "The stability of the world's economy relies on enhanced infrastructure; which is increasingly being delivered by JVs. However, JVs in the infrastructure sector are more-often-than-not formed due to the capacity to deliver projects, rather than the best capability to do so.

“The capability of businesses to deliver these projects is increasingly under pressure due to their increased scale, complexity and the integration of technology. Often, there is less consideration of the inherent conflicts within JVs or the opportunities arising from getting the JV better structured, more efficiently engaged and better incentivised."

The Pinsent Masons guide outlines best practice for JVs and gives parties the tools to develop successful structures, plan their tax and shareholder arrangements, consider regulatory issues across jurisdictions and plan for the worst case, by addressing termination provisions and how to handle disputes between JV partners.

Connor said: "The guide has been developed following extensive engagement with stakeholders across the firm's global infrastructure network including clients and industry bodies.”

Ian Laing, global head of infrastructure at Pinsent Masons, said: "As governments around the world are embarking on significant infrastructure spending programmes, it is a critical time for the future success of JVs. Similarly, as the sector looks to evolve and develop new organisational models based on alliancing and collaboration, such as Project 13 in the UK, Construction 2.0 in Hong Kong, and Integrated Project Delivery in Australia, there has never been a more important time for the sector to draw upon and apply such a resource to their JVs."

Comments

A couple of projects that I have been involved with in the past which were run using JV's actually ran pretty smoothly.
The main reason was that the JV's formed were set up as bottlenecks between the partner companies and the project site. This enabled the projects to proceed in normal fashion without disputes between the companies as the JV management had to reach decisions that were mutually agreed and then carried out by the project teams.
What also greatly helped the process was that often there were contracted staff involved whose loyalty was to the project - and not to an individual partner of the JV, so the project benefited.

Andy, 26 February 2020

In my view most successful JV’s need to have equal share in the project and develop a common objective and project brand which all staff fall under. Significant team building is needed at the start of the project at both Team and sponsor level with clear rules established and agreed in writing as to how JV disputes are resolved to the mutual benefit of the project. The project will succeed or fail based on the behaviors of the sponsors team and senior JV project managers. A lot can be said for execution of major projects in a true Alliance with the end stake holders.

Bryan Jones, 28 February 2020

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