INDIANAPOLIS — Construction joint ventures can help contractors win more business, but contracts with partner companies must be carefully crafted to clarify liability and insurance issues, a panel of experts said.
Projects can be structured in various ways, with each structure creating different liability considerations, they said during a session Monday at the IRMI Construction Risk Conference.
Joint ventures can make projects more complex, but they offer benefits for contractors, said Kevin McKeon, vice president and general counsel at Wagman in York, Pennsylvania.
“Why, when you’ve got a complex construction project, would you introduce yet another relationship into the mix to make things go awry? The answer to that, from a contractor’s point of view, is pretty simple: We want to get more work and do it profitably,” he said.
For example, as a bridge-building specialist, Wagman often forms joint ventures with asphalt paving specialists, Mr. McKeon said.
Joint ventures can be either line-item relationships, in which each partner is responsible for a different part of the project; integrated, in which they share the scope of work with employees working side by side; or hybrid, working separately but sharing some aspects of the project, such as surveying, he said.
The companies involved should agree on issues such as whether the joint venture will have its own employees, who owns the equipment and what rates will be charged for its use, when revenue will be distributed, and how disputes will be handled, Mr. McKeon said.
Once the structure is finalized, insurance considerations can be addressed; joint venture members have options, said Emily Glanz, vice president-risk consultant at broker Cottingham & Butler in Dubuque, Iowa.
The simplest way is for each company to add the joint venture as an additional insured to its current policies. However, the members might have different limits and wordings, which can cause inconsistent coverage, she said.
Another option is to appoint a lead joint venture member and then include the joint venture as a named insured. This approach can be helpful if the lead member has a strong insurance program; however, other members should review the additional-insured endorsement on the policy to confirm they are adequately covered, Ms. Glanz said.
In addition, the lead member should consider the liabilities it is potentially assuming from other members of the joint venture, she said.
“Their claims truly become your problem. That is your problem for the next however many years and the loss experience to follow,” Ms. Glanz said.
The third option is to buy a stand-alone, project-specific policy, said Will Bennett, a partner at law firm Saxe, Doernberger & Vita in San Diego.
Having a specific policy clearly delineates the risks and centralizes claims, though such an approach can be more expensive than the other options, he said.
In addition, the different joint venture members may have different risk appetites that need to be resolved, Ms. Glanz said.
“You need to know your partner’s risk appetite, because you might already have a $250,000 large deductible, and they may only be comfortable posting $50,000,” she said.
