The Middle East’s buoyant market for infrastructure projects has seen a strong return to the regional trend for joint venture contracting. Whilst the region is quite familiar with joint venture set up and incorporation, the current approach is taking on a fairly laid back guise, particularly when it comes to the structure and operation of those joint venture arrangements.
The question arises between contracting parties as to whether their joint venture arrangement should be formal or informal, and entered into on a corporate or non-corporate structure basis.
Successful joint venture partners aim to be collaborative, integrated, transparent, production efficient and expertise enhancing, all with the simple end game of making more money on their projects. The joint venture partners come together and accept that they can only achieve that by working together.
What we are seeing contractually in the market does not always lend itself to successful joint venture arrangements. Parties are often opting for the informal, non-corporate structure route. There are a number of key areas where they pass over fundamental aspects that do require their attention, including:
- Due diligence/financial checks – who are we really doing business with?
- Entering into a contract detailing each party’s responsibilities including joint or shared resourcing and of course key decision makers from both sides of the JV.
- Procurement strategy that is joined up rather than 2 separate contractor proposals supplied in response to a tender albeit under one name.
- Risk assessment and monitoring – is this the right project for us as a JV? Is the project actually going ahead? Is the employer good for the money through to completion? Do we really have the joint expertise required?
The predominant reason behind the non-corporate approach points the finger at procurement. From the front end of projects across the region, government and private developers alike are leaving their tender issuances to market far too late. They impose short or wholly unreasonable timeframes on contracting parties to submit their tender proposals including their confirmation of their joint venture arrangements. Many joint venture partners feel they are being politically thrown together when ordinarily they would look to do business with another preferred partner.
The rationale of “just get on with the job” means that joint venture partners are exposing themselves to unnecessary risks. They are failing to close out the structural and operational gaps that they usually would because they do not have time. Those gaps result in fractured and difficult joint venture relationships which ultimately impact on the success of project programmes, budgets and quality. On major infrastructure projects that poses a serious risk to employers at the top end.