Many construction projects are getting larger and more complex. This is especially true for public-works projects. Joint ventures allow one or more contractors to make a combined effort to obtain and complete projects.
There can be many benefits to forming a joint venture to bid on a project. A joint venture can allow one or more contractors to spread the financial risk of a project. Joint ventures can also allow two contractors with different specialties to join forces to bid on a project that requires the experience of both contractors. Finally, a joint venture can increase the bonding capacity of contractors to allow them to bid on larger projects that may otherwise be out of reach.
Some public entities contemplate contractors bidding on projects as a joint venture. The Florida Department of Transportation requires potential joint venturers to submit FDOT’s Declaration of Joint Venture form. The joint venture percentages on the form show the participation percentage of each entity that makes up the joint venture. The percentage indicates the percentage of proposed contract work to be debited against each entity’s current capacity, and the total of the percentages must be 100 percent.
As can be seen in the Florida Administrative Code, “[n]o party in the joint venture may exceed its Current Capacity by virtue of the percentage of work to be debited against its available capacity, as expressed on the signed statement and using the budget estimate as the comparison figure.” FDOT wants to make sure that none of the entities that make up the joint venture are exceeding their maximum capacity that FDOT assigned to them.
When forming a joint venture, it very important to have a written joint-venture agreement between the contractors teaming up to bid on a project. The agreement will specify, among other things, who will be responsible for obtaining insurance, who will provide equipment for the project, how the profits from the project will be split, and many other aspects of the project.
In short, joint ventures can be a great way for contractors to bid on projects that they may not otherwise be able to obtain. But typically, a contractor must jump through many hoops before it can bid on public projects as a joint venture, including completing the required pre-bid paperwork and drafting a detailed joint-venture agreement. The time invested on the front end of the joint-venture process can lead to great rewards of new, large, and interesting projects.