Joint ventures can serve a variety of purposes, with
sureties playing a crucial role; but the parties involved must make sure the
arrangement is legal, says Adrian L. Bastianelli, III, Co-Managing Partner of the national construction law firm of Peckar & Abramson in Washington, DC.
Bastianelli and Michael C. Zisa, a Partner and Chair of the
Surety Practice Group at Peckar & Abramson, will lead a continuing
education presentation on joint ventures at NASBP's 2016 Annual Meeting May
15-18, in Colorado Springs, CO.
One important purpose of a joint venture is to spread risk
among contractors who are willing to share profits, Bastianelli says. Other
reasons for collaboration may be that one contractor lacks the financial
capability, technical expertise or experience necessary to complete a project
alone, he says.
During the underwriting process, a surety will assess
whether participants have the “capital, capacity and character” to prequalify
for a bond program; and they will examine the contractors' abilities to
complete the work and avoid default, Bastianelli says. All participants face
both joint and several liability, and the surety therefore will require
indemnification from all partners to reduce risk exposure.
“The surety will not want to be forced to pursue more than
one party in the event of a termination, so it will be looking for at least one
contractor that is financially capable to bond the project by himself or
herself,” he says.
Joint ventures can run afoul of the law. One significant
example is when a large contractor handles the entirety of a project where a
joint venture was meant to satisfy minority-contracting requirements – an
arrangement that is “doomed to failure over time,” Bastianelli says.
Sureties also must beware of “angel deals,” where a
contractor lends its balance sheet to increase another's bonding capacity, but
contributes no work or fails to actively participate in the joint venture,
instead “simply serving as a bank,” he says.
“If the contractor can't bond the job alone and needs
another contractor's balance sheet to qualify for the bond, there is a greater
likelihood the contractor will not be able to perform the work and a default
will occur,” he says.
The most crucial aspect of a joint venture is finding a
partner who is financially and technically sound and holds the same attitudes
and ethics, Bastianelli says.
“For example, a contractor who does not believe in claims
should not joint venture with a contractor who actively pursues claims,” he
Joint-venture agreements also must be well written and
thought out so that partners have a framework to settle any problems they might
face, he says.
Plan to attend this CE session, which will be held at the
NASBP Annual Meeting & Expo in Colorado Springs on May 16 and at the NASBP
Regional Meetings this fall. Also, plan to attend the June 9 FederalConstruction Contracting Seminar in Washington, DC, which Peckar & Abramson
will be presenting jointly with NASBP.