Carefully worded agreements are key to preventing disputes, legal experts advise.

As the construction industry increasingly takes on complex, high-dollar projects, joint ventures (JVs) are becoming a preferred method for delivering them. These partnerships allow companies to combine resources, but without clear contractual language, they can lead to costly misunderstandings.

Recent projects like the $2.1 billion Buffalo Bills stadium in Orchard Park, New York — led by a JV between Gilbane and Turner — and Los Angeles’ $668 million G Line busway upgrade — spearheaded by Stacy and Witbeck, Flatiron West and Modern Railway Systems — are prime examples of this collaborative approach.

By joining forces, firms can share bonding capacity, labor, and specialized expertise to handle larger and more intricate builds. As project demands grow, this strategy becomes more attractive, said Mason Hester, an attorney at Dallas-based Munsch Hardt.

“As one example I’ve seen on massive DOT projects where a payment and performance bond is required with a very high dollar amount for the bond’s penal sum, it would be very difficult to find a single prime contractor with the bonding capacity to furnish such a bond,” said Hester.

Still, JVs aren’t risk-free. To avoid legal disputes and operational confusion, contracts must clearly define each party’s responsibilities, say attorneys.

Hester shared a cautionary tale from his practice in which unclear language triggered a legal battle over arbitration terms and officer obligations. With better-drafted documents, the dispute might have been avoided.

“A well-drafted JV agreement can often eliminate, or at least significantly reduce, the confusion, headaches and legal expenses that can result from a poorly drafted JV agreement,” said Hester.

Clarifying Roles

The cornerstone of any JV contract is outlining the scope of work for each firm involved.

“The roles should not be left to be determined once the company is formed,” said David Podein, partner with Miami-based Haber Law. “The determination on roles and responsibilities takes place during the negotiation stage.”

JVs typically start with a formal Joint Venture Agreement (JVA), though real estate-heavy projects may use a letter of intent early on to define preliminary terms. These agreements spell out everything from profit-sharing and work allocation to dispute resolution and exit strategies.

According to Laura Fraher, a partner at Barclay Damon in Buffalo, New York, division of labor is often based on each firm’s strengths.

“Many times a joint venture is formed between two parties because they have different areas of expertise and in those circumstances the division of labor is quite obvious,” said Fraher.

When that’s not the case, decisions must be made collaboratively.

“The work should be divided cooperatively between the parties based on considerations such as strategy, respective strengths and availability of resources,” Fraher added.

The "Marriage" Dynamic

Because joint ventures are sometimes referred to as a “marriage of convenience,” personal dynamics and management styles can significantly influence their success.

“So much of this can come down to the personalities and approaches of the management and their ability, or lack thereof, to have an approach of working together with their other JV members,” said Hester. “As opposed to throwing the other JV member under the bus.”

Importantly, joint ventures are often jointly and severally liable — meaning if one partner is at fault, the entire JV may be held responsible by project owners.

“It is up to the JV members to figure out which one of them is responsible for some or all of that payment,” said Hester. “The allocation of which is hopefully detailed in a well-crafted JV agreement.”

Avoiding Stalemates

To prevent disagreements from escalating, JV agreements typically include layered dispute resolution methods. This might mean requiring executive-level discussions before moving to arbitration or establishing internal review boards.

“We spend a lot of time upfront ironing out command and control and reflect that in the contract,” said Trent Cotney, partner and co-leader of the construction team at Adams & Reese in Tampa, Florida. “The goal is to be fast and efficient.”

Boards are particularly crucial in 50/50 partnerships, which are more susceptible to deadlocks. That’s why strong agreements often include buy-sell provisions and other exit mechanisms, said Podein. Other vital clauses cover capital contributions, profit allocation, bonding, and project termination protocols.

As projects become more complex and design-build delivery models more prevalent, joint ventures are expected to remain central to the industry.

“Joint ventures are becoming more common as projects are growing in complexity and scope,” said Fraher. “The most important thing is that the division of labor is agreed to clearly in advance and is well-documented to avoid any future disputes.”

Originally reported by Sebastian Obando in Construction Dive.