Contractors and Joint Ventures
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Two contractors decide to enter into a joint venture on a project. What difficulties can occur if the contractors have decide on who does what work, what changes may take place if problems occur? What happens if one contractor has higher salary levels and overhead rates?
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Solution Summary
Two contractors decide to enter into a joint venture on a project. This solution discusses the difficulties that can occur if the contractors have to decide on who does what work, what changes may take place if problems occur and what happens if one contractor has higher salary levels and overhead rates. Supplemented with a highly informative article on the different types of joint ventures.
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1. Two contractors decide to enter into a joint venture on a project. What difficulties can occur if the contractors have decide on who does what work, what changes may take place if problems occur?
There are different reasons to form joint ventures. Joint ventures can take different forms. The primary feature that distinguishes a joint venture from a partnership is that the joint venture usually is formed to undertake a single project whereas a partnership creates an ongoing business. (1)
For proper management of joint ventures, the two contractors in this scenario must use an appropriate joint venture agreement, which is critical in managing the risks inherent in joint ventures. (1) It also defines the parameters and type of joint venture, because there are different types of joint ventures (e.g. integrated, non-integrated or a combination of the two). Because these two contractors form a joint venture for one project, it is likely a non-integrated joint venture. That is, non-Integrated Joint Ventures are used when the:
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