Joint Ventures Importance in a growing P3 Firm
Updated: May 16, 2019
Government infrastructure projects require careful planning. Securing a contract requires expertise, prudent decision making, financial forecasting and risk management. Utilizing a Joint Venture Structure is important for establishing foot print without excessive liability.
The requirements of Public Private Partnership(s) (P3) are organized into a format called Request for Proposal (RFP). A RFP details several requirements of a particular project scope. Included in the RFP process is a "Principal Vetting Process". In the Principal Vetting Process extensive due diligence is conducted on company principals. The Due Diligence Process includes several key items. These items include: criminal background, financial history, litigation searches, license registration, insurance and bonding checks, financial solvency & work references.
Often when starting a P3 firm resources are limited. In an effort to establish market presence many individuals struggle with future contract forecasting. Including a future principal that may satisfy tactical cash flow issues but hinder strategic contracts later is a common pitfall.
The solution to integrating a tactical decision without strategic conflict is found in structuring.
Figure 1.1 demonstrates a matrix that focuses on a "Deal". A Deal means - a specific transaction undertaken according to contractual agreements (Partner Agreement) that have shareholder support (Internal Support) to accomplish specific goals (Strategic Fit) and do not conflict with overall company plan (Strategic Plan). The components that make up Deal formats are Political Considerations (name indicative) and Analytical Considerations (items that focus on cash flow without future conflict).
A Joint Venture is a formal contractual relationship that does not result in company mergers, joint accounting, or liability outside the project scope undertaken (i.e. the deal). JV Structures are phenomenal tools that allow usage of separate Employment Identification Number (EIN), separate bank accounts, and function like a separate partnership. The benefit of these structures include: no incorporation fees (most states do not require it), no public records of Joint Venture Organization, distinct legal separation of company activities, & formal contractual relationship that solidifies firm legal protection for monies earned.
Figure 1.2 shows how a Joint Venture Management System handles all faucets of Implementation, Strategy and Exit. It is important to note monitoring and outcomes influence all areas of reinforcement and expansion activities. This graph includes the function of "exiting" or "redefining" the relationship. The importance of integrating an exit structure cannot be devalued.
A joint venture represents a viable alternative to P3 firms seeking to take advantage of tactical cash flow opportunities which may negative impact larger growth. A formal Joint Venture allows management of projects for specific scopes without any influence to future RFPs.
Choose partners wisely. Choose partners who will fit into long term plans. In the event principals lack ability to grow past a certain threshold do not limit your opportunity. Take advantage of a flexible structure that serves today's needs without sacrificing tomorrow's goals.
Take advantage of unincorporated Joint Venture Agreements.
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Knight Advisory & Planning (KAP) is the only company to primarily focus on Public Private Partnerships (P3) since 2006. KAP operations are spread across countries of the world to serve this need. KAP Network consists of core partners surrounded by interlocking networks of consultants and affiliates in key trading countries and disciplines. We maintain Master Project Manager (MPM) who are American Academy of Project Management (AAPM) certified and are experienced in the following industries: construction, development, finance, technology, FinTech, biotechnology, production, R&D, and manufacturing. With over twenty (20) years of experience let us guide you through the P3 process.