Joint ventures: opportunities for Australian projects

Out-Law Analysis | 16 Aug 2021 | 2:17 pm | 3 min. read

In a market as large and diverse as Australia, joint ventures (JVs) offer contractors of different sizes more opportunities to contribute to a broader range of major infrastructure projects.

Australia has a very strong, extraordinary pipeline of construction ‘mega projects’ in train, with varying degrees of contract conditions calling for a range of different skillsets. Some procuring authorities, including New South Wales (NSW), now explicitly reference international projects experience and key personnel in their procurement documentation.

There is no ‘one size fits all’ approach to successful joint venturing. A JV only works where each party knows what they are doing and what the roles of the other parties are, and delivers on what it promised to do at the outset of the relationship. A JV is a long-term commitment, and disputes are inevitable – but open communication, strong relationships and a shared culture will all contribute to the ultimate success of the partnership.

Why joint venture?

There are many reasons why construction contractors may seek to enter into a JV, including:

  • capability and capacity – the ability to pool resources, people, plant, technology and specialist skills;
  • cost sharing – enabling parties to access the high cost Australian market and meet any balance sheet tests set by the procuring authority;
  • local knowledge – locally-based ‘tier 1’ contractors and small technical specialists can bring expertise to the table that even the largest overseas contractors can lack if new to the Australian marketplace;
  • growing your market – for smaller contractors, partnering with larger ‘tier 1’ contractors can enable them to access opportunities that would otherwise be out of reach;
  • a pre-existing operating relationship.

Setting yourself up for success

Getting a JV to last and function over the long term can be challenging. Allowing one year for the bidding process and between four and five years for project execution is a considerable length of time during which the personnel who negotiated the JV may have left the business and other initiatives taken priority within partner organisations.

The most successful JVs are those where there is a good cultural fit and where each party understands its own role and those of the other parties. This doesn’t always happen, particularly on big ‘mega’ projects with multiple participants from different countries and different cultural backgrounds.

Ideally, a JV should be fully integrated with participation based on a percentage split rather than a specified scope split. This is not always easy to achieve, particularly where one of the parties is bringing a particular skill to the JV that the others lack. Clear documentation and mechanisms for resolving any ambiguities will be essential to early and successful resolution of disputes as the project evolves.

Accurate documentation of the arrangement, and each party’s rights and responsibilities within that, will be essential. For example, it should be clear whether there are any ‘silent’ parties whose responsibility is limited to contributing to the balance sheet. A joint venture agreement will usually be fairly substantial – although probably less substantial than client contracts tend to be in the Australian market.

The agreement should provide for regular project meetings with senior level attendees from each partner organisation, allowing for the resolution of disputes at an early stage. Dispute resolution mechanisms should focus on maintaining the relationship, for example mediation or expert determination as a fall-back option. Arbitration provisions may be included where a JV partner or its parent is headquartered overseas, although these should be used as a last resort. Adversarial dispute resolution mechanisms risk damaging the relationship, making successful delivery of the project less likely.

New ways of working

While many overseas construction markets are now opening up after a period of restrictions designed to stop the spread of Covid-19, parts of Australia are once again in lockdown to combat the spread of the ‘Delta’ variant of the virus. At the same time, restrictions on cross-border travel and trade continue to impact on projects, and experience of the past year has shown that these can often change at short notice.

Historically, those based on the ground in Australia have been able to travel across state lines and internationally to visit senior management and peers and make the case for any necessary increased support and resources in person. While long-distance video and telephone conversations are efficient to a degree, it can be more difficult to build and maintain relationships using these methods.

Covid-19 has also exacerbated the difficulties monitoring global markets and fully keeping pace with change that those in Australia sometimes experience given its geographic location and time zone differences.

Travel restrictions are also proving challenging from the perspective of a globally-mobile workforce. Project personnel often work on a ‘fly-in, fly-out’ basis, or have to relocate for work purposes for short periods of time. At the outset of the pandemic, when case numbers were lower in Australia, the location was seen as one of the safest internationally – but those who chose to travel may not have returned home for almost two years now, with Australian quarantine requirements and caps on traveller numbers making it difficult for those who leave to return to work.

That said, Australia remains a desirable location to live and work, and with technology making new ways of working increasingly easy and effective, we are already reaping the benefits. In particular, remote work makes it easier to tie in with technical expertise located anywhere in the world.

Co-written by Melissa Molloy of Pinsent Masons.