Dynamic duos in our favorite childhood cartoons, HBO TV series, and blockbuster movies are all about partners and alliances, and these apply as much in real life as they do in fiction. McKinsey says it best; partnerships never go out of style.
Business partnerships aren’t simply a trend, but a strategic move for organizations in almost all industries. And they’re everywhere. As suppliers of industrial tools, Husqvarna Construction and AABTools have partnered up to bring their innovative machinery to a wider market, while real estate groups join the modular construction industry to speed up building times. Companies across various sectors are making these judicious investments, but why are they so important now more than ever?
According to business intelligence reports, the global construction market was worth $13,574.73 billion in 2021 and is expected to continue growing at a CAGR of 7.3% until 2030. However, despite this growth, companies worldwide have scaled back production to keep workers safe and minimize outbreaks. Unprecedented population growth, the increasing complexity of construction projects and a lack of skilled workers have caused demand to surge to all time high, meaning stakeholders within the supply chain must join forces now more than ever to meet the demands of today’s hungry consumer.
However, a successful partnership requires heavy lifting, cooperation, and trust. When entering a new relationship, it might not just be the benefits that you sign up for, but the losses too. As with any marriage, it is pertinent to know who you are getting into business with and ensure your objectives are aligned.
Let’s take a look at some different types of strategic partnerships so you can assess what options there are in order to mitigate risk and guide your construction company to success.
Types of Strategic Partnerships
Strategic partnerships come in all shapes and sizes. One common type of such partnerships are partnership agreements. These have built-in safety nets for dispute resolution, as well as risk and reward sharing. Those who make up these partnerships in the construction industry include customers, consultants, construction managers, key specialists, and suppliers. There is no specified end date for general and limited partnerships (GPs and LPs), but depending on the level of legal liability, they can be difficult and expensive to dissolve.
Another example are Joint Ventures (JVs), which consist of partners from the public and private sectors working together to create a co-owned legal entity to jointly deliver goods and services. Creating a business arrangement where multiple parties pool their resources together to complete a task is a smart business decision for the construction industry to follow. Unlike GPs and LPs, JVs outline a specified timeframe to complete a project or new core business activity together. It’s like a test run for a new alliance—and if things work out, you can extend the agreement.
Take COBOD, a leading 3D construction printing solutions company, for example. Their recent partnership agreement with cement experts at CEMEX has allowed them to efficiently tailor conventional concrete for 3D printing for housing, removing their precious reliance on highly specialized and expensive mortars. Together, they have been able to implement a more efficient process that requires less material, costs, and time.
Either way, not just across the construction sector but in every industry, it’s evident that the best types of partnerships are working towards the greater good and the industry’s transformation. Solving challenges from a technological and sustainable viewpoint are the ones that really succeed in the long-run.
Why Join a Strategic Partnership?
Strategic partnerships have been all the rage in the construction industry ever since the report Constructing the Team (The Latham Report) was published. The increasing growth of strategic partnerships comes as no surprise since companies can reap greater benefits such as enhanced quality of work, efficiency, budgeting, and lower litigation risks. It is also an opportunity to break away from being viewed as one of the most fragmented and least digitized industries.
Business relationships work just like personal relationships in that the longest-lasting ones have common goals and shared values, as well an understanding of the risks involved. This process relies on open communication between all parties: from clients, architects, engineers, construction managers, general contractors, and even subcontractors. Just imagine having a partner you trust by your side as you scale.
These partnerships also incur lower costs by allowing businesses to pool together their money and existing resources, which lowers manufacturing expenses and risk.
How Does it Work?
Leading executives believe 30%–40% of partnership meetings are about business; the rest of the time is spent building friendships and trust.
GPs and JVs are extensive, multi-departmental, and often long-lasting working relationships between companies and contractors. They require clearly defined goals from both parties and emphasize accountability, transparency, and teamwork, sometimes enumerated in a framework agreement. In these business partnerships, both parties share the risks and rewards of the project—they have joint responsibility and control over decisions and future actions. Often, the synergies achieved by collaboration far outweigh those that could be achieved by one entity alone.
Often, partnerships require a framework agreement, which refers to a long-term strategic contract outlining terms and conditions between partners, often extending across multiple projects. These establish specific conditions for projects as well as for the suppliers and contractors needed. Clear and concise framework agreements are what every business should strive for in their partnerships with each other. In fact, there is a direct positive relationship between the length of a contract and the opportunities for building working relationships, finding improvements, and planning investments.
What Do Strategic Partnerships Mean for the Construction Industry?
By nature, construction projects rely on a wide range of professionals and tradesmen. This means creating and completing projects with many different types of workers with a variety of skill sets and work ethics. Collaborating on construction projects means that contractors are better equipped to build high-quality construction in a reasonable timeframe and at a lower cost, but partnering with other companies and contractors requires every party to put in the effort necessary to commit to the end goals of the project. Long-term business partnerships are the end goal because it proves that a partnership is successful and that results can be replicated.
Some large players in the construction value chain have invested in the industry's future, creating strategic partnership programs with startups. These partnerships intend to reduce concrete’s carbon footprint by double digits, release sustainable electricity on demand, and replace fossil fuels to achieve net-zero emissions.
Strategic partnerships and programs dedicated to revolutionizing the construction industry for the better are crucial in today’s digitized and evolving landscape. But construction leaders should make sure they have everything in order before entering into a strategic partnership and remind themselves what these partnerships could mean for the greater construction industry. If there is anything to learn from the story of the three little pigs, it is that quality construction trumps all else.
