Living in a “JV” World /11-19-2014

As the owner of ABC Rock, a local drywall contractor, you were approached by another drywall contractor, XYZ SheetRock, to join forces to bid a large project. XYZ was from a town about two hours away but was doing some work for the customer who was now building in your market area. The job was definitely larger than you could take on alone and the thought of getting some work with the well-known builder was inviting. However, you had never JV’d a project before and were more than a little nervous about the prospect. Plus, you didn’t really know much about XYZ SheetRock. However, the owner of XYZ was very interested in keeping a much larger and national “rock contractor” from winning the work. This appealed to you as well.

Joint Ventures, or “JVs,” are fast becoming a normal trend in many circles of construction. Certainly the General Contractor has seen the JV project opportunities grow as the statistics on building projects confirm the fact that many GCs are being asked or are asking other GCs to join forces to win a project.

Many Specialty Contractors, especially those involved with the non-residential market, are also reporting a greater exposure to possible joint ventures with other similar contractors. There are some reasons for this increase in JVs or joint partnering across many market sectors, including:

  • Due to the size of a project, one contractor may not be able to meet the needed work quantity alone.
  • The complexity of a project might require another contracting specialty that one contractor might not have.
  • The customer prefers that more than one contractor be engaged for “peace of mind” reasons.
  • One contractor, new to an area, might have the “muscle” to execute the work but does not have the reputation or name to get the job.
  • Two small- to medium-size competitors in the same area of specialty might see the benefits of pursuing a job together rather than to lose out to a much larger contractor.

The fact that JVs are available today, more so than in past years, is reason enough for any smart contractor to consider how to play this game. Knowing how to play in the JV sandbox requires a few components for the contractor to assess and consider prior to their jumping in.

It’s important that a contractor:

  1. Take an honest assessment of his company’s strengths & weaknesses. Ego is the great enemy of honest self-appraisal. For some contractors, admitting that they might need any assistance is a hard thought to swallow. Briefly, a contractor can look at his “sweet spot” of production by the revenue and profitability figures for one assessment. Another mirror review is to identify the exact special skills and services the company performs. In other words, “Do we really know how to perform this type of work?”
  2. Look for JV “partners” that mirror closely the type of work culture and reputation that you have with clients, suppliers and workers. Notice the emphasis is on “culture and reputation.” Two contractors looking to a possible JV relationship might balance each other with their separate skill sets but can they “live together”? Most JVs, like any marriage, will suffer through some issues, but the key is if the two contractors share even some of the most basic of culture values, such as safety first, customers are a top priority, and quality over quantity. If there is not a match on such things the JV relationship might not only be a personally defeating experience for those involved but also prove to be less profitable than first forecast.
  3. Consider the benefits to a JV rather than pursuing the work alone. Now, depending on the sharing of skills, people, equipment, etc. the JV might be exactly the thing for the contractors involved. Contractors must assess the real benefits to the JV. Can we win the project? Will this project provide a profitable experience? Will the project enhance our reputation? Is the project good work for our team? Can we expand our learning about other techniques, services and approach to construction? If there is a questionable response to more than a few of these sorts of questions then perhaps the JV is not the right thing to do at this time.
  4. Strongly assess the commitment a potential JV partner has to safety, quality, employee relations etc. This expands a bit on the culture focus mentioned earlier. However, it is not enough for the contractor with whom you are considering a JV project to simply have safety posters on the office walls or a tag line on their company logo such as “Quality is THE ONLY THING!” You will need to interview the other contractor, take some site tours of his other projects, and even talk to other contractors and suppliers who are familiar with the contractor in question. Sounds tough? Sure, but your goal is to protect your company and you can’t afford to risk all that you have developed as a contractor to be torched by another contractor who does not take seriously some of the things important to you.
  5. Assess the years of experience, expertise and maturity of the leaders and craftsman at the JV candidate. This effort is getting deeper into knowing the possible “mate” in your JV opportunity. Where is the other contractor coming from in pursuing a JV opportunity? If you are approached from another contractor from outside your market area, take seriously the suggestion to see what he is bringing to town. He might just be taking the temperature of the water with less than his A-Team project member.

The five considerations provide any contractor with a sober beginning when considering pursuing a JV or some form of a partnering relationship with another contractor.

*** A quick clarification to note. I’ve had contractors ask me to define the difference between a JV relationship and one that has one contractor simply sub-contracting some or all of the contracted work to another contractor. Briefly, when subcontracting work to another contractor, there is basically a delegation of all of the needed actions from one contractor to another. If the contractor who holds the project contract simply wants a second contractor to do a few of the contracted activities, I would advise both contractors that this relationship falls closer to what a JV led project intends to provide.

If a Joint Venture relationship is entered into between two contractors, a very clear understanding needs to be developed prior to the two contractors working together. Leaving this effort out early will almost always guarantee many challenges later.

After conducting hundreds of “partnering sessions” between JV contractors over the years, let me shed a little light on how you can turn your future JV opportunities into more satisfying and profitable project experiences.

How to Get Your JV Off to a Great Start

  1. Conduct a Contractor-to-Contractor Leadership Meeting. This should involve the owners and the senior players who will be conducting much of the back-and-forth communications for the JV.
  2. Engage the JV Leaders to Develop a Vision & Culture Agreement. Think this is over the top? Fine, go ahead and do your JV without this effort and risk putting yourself and your people through an extremely painful experience.
  3. Identify, Introduce, and Line Out “Who, What, When, & How.” Construction leaders who perform fine on their own projects suddenly have “issues” on a JV. This can be greatly mitigated by having the two construction company leaders meet and line out as much of the practical “How are we going to execute this project?” as possible.
  4. Set Specific & Scheduled Accountability Checks & KPIs. This effort will actually reduce much of the stress felt by your own construction leaders if they know that there will be periodic “check-ups” to monitor the progress of the project, feelings, issues etc. Also, establishing Key Performance Indicators moves both sides of the JV to keep common goals in mind rather than pandering to their personal, and sometimes selfish, goals and objectives.
  5. Create a Recognition & Celebration Budget Item. Don’t spare the effort or money to say “Thanks,” “Great Job,” and other such motivating efforts. JVs are hard for most contractors and the over-emphasis on keeping the troops, on both sides, up and positive can overcome much frustration. Budget items should allow for lunches, movie tickets etc. periodically for the players involved with the JV. This reassures everyone that it’s worth moving through this effort to construct in a tough and different manner than is what normally addressed.

I do not believe that I have ever known a contractor, whether a GC or Specialty Contractor, who fell in love with experiencing a JV project, at least not enough to want to make it their primary strategy to win work and grow their company. Yet, as greater accountability measures and compliance issues are thrust upon our construction industry, the JV project might be another approach to growing your company.

Don’t wait ‘till you find yourself in a JV relationship before employing the recommendations here. I’ve presented these to you for your benefit so that you might find your “JV going” more effective, enjoyable and profitable!

Brad Humphrey  

© 2014 Brad Humphrey, Pinnacle Development Group/The Contractor’s Best Friend™

 

 

 

 

 

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