City infrastructure with purple colour overlay

Reasons for a Joint Venture

In our chapter we focus on 7 primary reasons for using a joint venture to procure and deliver infrastructure projects:

  • Regulatory requirements
  • Pooling of resources and/or capabilities
  • Optimising the supply chain
  • Boosting balance sheet strength
  • Sharing risk
  • Enhancing competitiveness
  • Improving geographical and/or local knowledge

The benefit of pandemic hindsight reinforces our view that the reasons for joint venturing are not only constant but also more relevant than before.

Policy responses at a country level strongly influence economic performance (and in this context recovery).  We know from research from Oxford Economics that spending increases are much more effective than tax cuts in supporting real growth and that a high percentage of fiscal spending goes into infrastructure which boosts competitiveness and economic performance.  Said differently an economic rebound is likely to see a large rise in infrastructure projects formed over the next period to deliver the larger levels of fiscal spending. This will in turn lead to a larger than normal rise in the formation of JVs and we are already beginning to see this.  Many countries across the globe have stated their intention to follow an infrastructure led economic recovery.

Graham Robinson notes that some of the larger construction markets are likely to see a drop of about 7% in construction output in 2020 and 2021 (compared to a drop of 2.9% in the Global Financial Crisis) but that in the run up to 2020 we had already experienced a significant weakening of grow in construction.

Nick Baveystock

Director General, Institution of Civil Engineers

In the context of procurement and delivery of mega infrastructure projects and in considering the reasons for choosing a Joint Venture, it is essential to refer to the UK Project Initiation Routemap's Six Pillars of Procurement Excellence

Although many markets will remain variable for the short term:

  • North America has put in a massive US$2 trillion stimulus package which will help prop up the economy.
  • Europe has put in a EUR750 billion stimulus package.
  • The Chinese construction market contracted by 16% in the first quarter but is already regaining momentum.
  • Growth in Australia had already contracted in 2019 and is expected to see a double digit fall in 2020 but with recovery in 2021 and 2022 being equally sharp.
  • We expect to see:
    • a significant increase in infrastructure spend, including on projects;
    • a huge acceleration in the use of technology to improve construction which has significantly lagged other sectors such as manufacturing.
    • the nascent market in off-site manufacturing becoming explosive in terms of growth;
    • convoluted global supply-chains being simplified over the coming decade with greater focus on regional and domestic capabilities; and
    • we traditionally expect to see around a 20% acceleration in the formation of new JVs in an upturn cycle but following an unprecedented event and with large infrastructure focused stimulus programmes being implemented globally to stabilise economies we expect to see a much larger acceleration in the formation of JVs to deliver these stimulus programmes.
Restructure

Restructure

The initial phase of recovery from Covid-19 will require the restructuring of distressed infrastructure projects and programmes. This will include dealing with claims and disputes as well as refinancing of infrastructure projects and recapitalisation of supply-chains.

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Reset

Reset

The effective development of new pipelines of infrastructure projects at a national level and the procurement of new infrastructure projects as a part of government stimulus planning will need careful structuring and capacity planning.

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Reinvent

Reinvent

Transforming productivity is essential for the effective and efficient delivery of infrastructure projects. The effective implementation of innovation and technology and the need to develop new skill sets and leadership as well as improved governance of infrastructure projects will be essential in transforming productivity.

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