Alabama Construction News

JUL-SEP 2018

Alabama Construction News is the states only bimonthly magazine dedicated to the commercial construction industry.

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46 AL CONSTRUCTION NEWS JUL–SEP 2018 A JOINT VENTURE ALSO CALLED A "JV" (sometimes known as a "combining of business resources") is a business relationship much like that of a partnership where two or more people or entities combine their labor or other resources in order to pursue a single project. In this type of arrangement, the joint venture operating agreement is a critical documentation element as it defines the sharing of profits, losses, and responsibilities of each JV partner. Normally, one member of the JV is the managing member and they are traditionally responsible for the administrative tasks of the JV's operation and play a major role in all final business decisions regarding the operation of the JV. Joint ventures have become a popular strategy, especially on larger, more complex projects. The accessible combination of experience, expertise, financial capacity and availability of competent personnel have led to a significant increase in this business model over the past several years. As with all partnerships, to achieve a successful outcome a multitude of issues have to be resolved up front such as; finding the "right" JV partner, strategic divisions of work to be performed, equitable allocation of risk/reward (profits and losses) plus appropriate legal, insurance and risk management decisions. Is the "JV" model right for us? Here are some items to consider; • Is self-performing a true option, or is there strength in a partnership? • What are the liability risks involved in this project? • What technical skills (capabilities) are required to perform this job? • Are special qualifications required to bid such as DVBE, SBA, etc.? • What geographic challenges will be faced? • What political challenges will be faced? • What financial requirements are involved? • What are the personnel requirements? (Superintendents, trades/crafts, support) CONSIDERATIONS FOR INSURING JOINT VENTURES by GREGORY B. PARKER, CIC CRIS, VICE PRESIDENT-INSURANCE, TURNER INSURANCE & BONDING • What subcontractor relationships are required? • Does a second set of eyes/ears put us in a better position? • What are the insurance and bonding requirements? Picking the right "JV" partner is critical in this process. Key considerations when making that choice are; • Are they a cultural match? • What are their technical capabilities? (What do they really bring to the table) • Can we TRUST them? • What is their performance record? (Financial, reputation, experience, safety, etc.) The design and implementation of a JV's insurance and risk management program is driven by the JV's legal structure, the agreement between or among the JV members, the project requirements and in part, the purpose for which the JV is being formed. There are at least (3) three keys to planning a JV insurance program as follows; • Selecting the proper available insurance options (coverages, retentions, limits, etc.) • Assuring that the chosen insurance program accomplishes the (2) two main goals of; » Insured separation & severability » Removal of subrogation risk against a JV member • What is the long-term plan for the JV? (Shut-down, dissolution, etc.) A written JV or partnership operating agreement is an extremely important document that no company should go without. Some critical components of a JV agreement are; • Structure (LLC, Limited Partnership, S-corp, C-corp); What are the tax/risk implications? Greg Parker, vice president of Insurance Operations with Turner Insurance & Bonding Co., has served the construction insurance and surety industry for the past 25 years. He specializes in "loss sensitive" programs such as OCIPs, CCIPs, Wraps and Captives. • Responsibilities (Management, administrative, support, field) • Personnel requirements • Insurance, risk management and surety obligations • Indemnification • Profit and loss split • Contributions and Distributions • Termination (How do we get divorced?) • Dispute resolution • Mutual right of control Insuring the JV opportunity is challenging as insurance policies vary greatly between carriers. Many policies seek to exclude coverage for JVs and partnerships while others automatically include them as insureds. Careful due diligence must be exercised when designing and implementing the insurance GREGORY PARKER

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