When the Joint Venture Becomes More “Several” than “Joint”
Keeping Things in Delivery Mode
Joint ventures on major capital projects are in dire straits. COVID-19 has impacted the entire spectrum of companies that depend upon capital projects as an important part of their business. Owners, engineers, architects, contractors, suppliers and all the companies that support them have been in a state of uncertainty for nearly a year. While this has been hard on these companies individually, one group that appears to be experiencing even greater upheaval is joint ventures and contractor consortia on major capital projects. The ability of these consortia to deliver on their business promises has never looked more challenged.
The stresses imposed by COVID-19 and the current anticipation of ramping up project work activities in 2021 affects joint venture relationships like stresses affect any organization. An activity as brief as a one-day family event — like a wedding — is a great example of tight timelines and organizational stress. Stress influences how we make decisions and pursue our goals. People reveal their true character when under pressure and joint venture partners are no exception. When the requirements of the project start to look unworkable due to COVID-19 or other economic drivers, the parties tend to take steps to protect themselves. Outside influences weigh more heavily in every decision.
As part of a complex system, joint ventures need loose coupling in their individual capability and tight coupling of shared roles in project delivery. Like any engineered system, those parts of the joint venture relationship that are not tightly coupled tend to work their way apart when exposed to abnormal pressures. Pressure exploits the gaps among the parties’ roles; it widens the cracks. By their very nature, joint ventures have many gaps. These failures can be catastrophic to a joint venture’s ability to deliver on its promises.
This Isn’t What We Sold
Economic conditions are often substantially different during construction than when the joint venture was initially formed — which was sometimes years earlier. Venture partners might prefer to view the change in circumstances as somebody else’s fault or something that could not be known beforehand. They accept blame only for that which can specifically be attributed to them. They are usually under severe pressure from their parent organizations, who often themselves have economic challenges that extend beyond the project. Venture partner “joint and several liability” attitudes often give way to “every company for itself” behaviors. Clients will see more “several” than “joint” behaviors. Venture partners will tend to preferentially pay attention to their individual needs.
Lawyering-Up Doesn’t Build Projects – Alignment Does
Like a marital dissolution, joint venture companies cannot simply “lawyer” their way to a happy place. They will need help and some of that help may take the form of legal counsel, but litigation serves only to control economic damage, at best. It is likely the project still needs to be delivered.
In short, the customer needs resolution for their project, because they are economically exposed. This presents an opportunity for joint venture partners to pull together and offer their client some acceptable scenario options (plural!) for project completion. Those options are best explored by gaming possible outcomes without prejudice — suspend apportioning blame for another exercise. Joint ventures should lead their customer to success, rather than pointing a lawyer at them and expecting them to pay their way out of failure.