There are many important provisions to include in joint-venture agreements between contractors pursuing a project. (For a list of five important provisions to include in joint-venture agreements, click here.) One important thing to address in a joint-venture agreement is how capital contributions will be handled.
Here are questions to consider when drafting a capital call provision in a construction joint-venture agreement:
- Who will determine that additional capital is required for the joint venture to complete the work?
- Who has to agree with that determination? In joint ventures with more than two contractors, will it be a simple majority vote or will unanimous consent be required?
- If unanimous consent is required, will one of the joint venture partners—likely the majority partner—have the right to make a unilateral capital call when/if the majority partner decides that without the capital, the joint venture cannot successfully complete the project?
- How will disagreements regarding capital calls be handled? If unanimous consent is required for capital calls, how can the partner who believes that additional capital is needed to complete a project challenge the other partner’s refusal to contribute capital to the joint venture? If a partner may make a unilateral capital call, how may the other partner challenge that capital call as unreasonable?
The above questions are worth considering and expressly addressing in a construction joint-venture agreement. If language addressing the above questions is not included, there may be disputes between partners in a construction joint venture as to capital calls.
There have been at least a couple of significant, recent disputes regarding this issue. One of those disputes is currently being litigated in a federal court lawsuit between two contractors—Archer Western and The McDonnel Group.Continue Reading How to Address Capital Calls in Construction Joint-Venture Agreements