Author Note:
ART-IS-ZEN® architecture & engineering
2605 S Decatur Blvd, Ste 123 Box 101
Las Vegas, NV 89102-8591
www.art-is-zen.com

Abstract
Joint Ventures combine the expertise and resources of multiple parties to perform construction projects. Contract agreements between owners, architects, engineers and contractors must clearly define the scope of work along with the roles and contributions of each party. The terms must be negotiated, agreed upon, and enforceable. New technologies and the collective experience provide opportunities for collaborative partnerships. With increased complexity, shorter timelines, and tighter budgets, legally binding documents are essential to successful project completion. Mutual understanding of contractual obligations and financial risks allow team members can focus on cooperative business practices and shared professional benefits. This paper explores some of the standard agreements and addresses keys areas of concern, while providing detailed information about large-scale endeavors.
Keywords: Joint Ventures, Design-Build, Construction Contracts, Risk Management, Dispute Resolution 

Joint Venture Agreements are a common way for contractors to join forces in the pursuit of construction projects. Combination of expertise, resources and finances to perform the work results in shared benefits and risk [1]. The collaboration includes, 1) the intentions of each party, 2) mutual contributions for a profitable enterprise, 3) defined measure of controls, and 4) the division of profits and losses. This partnership is usually for established for a specific project, though may develop into a continuing business relationship. As with all construction, unanticipated performance and financial issues are a threat, so proper planning is essential in preventing disputes and successful completion.

The multi-party agreement, American Institute of Architects (AIA), Document C191 [2], intends to form a cooperative environment to align individual interests for project delivery. Bringing together the knowledge, skills and services of each will benefit performance during all phases. These parties should be identified as key project participants with contractors, consultants and suppliers becoming involved at appropriate times for the benefit of the project. Parties shall act collectively to establish target criteria and accomplish mutually agreed-upon goals. With an intended target cost, any saving realized from the actual cost shall be shared per the terms of the agreement. Any compensation in achieving project goals will be specified in the target criteria. Collaborative technologies and digital tools, such as Building Information Modeling (BIM), should be utilized by the project management team. The Integrated Project Delivery method delivers the project in phases: 1) Conceptualization, 2) Criteria Design, 3) Detailed Design, 4) Implementation Documents, 5) Agency Review, 6) Buyout, 7) Construction, and 8) Closeout [2].

AIA, Document C101 [3] was developed from the former Document C801 – 1993, Joint Venture Agreement for Professional Services. It is intended to define mutual rights and obligations of two or more parties. This document organizes the operational relationship between architects, engineers and other professionals. Once established, that partnership will enter an agreement with the owner to share obligations and responsibilities and perform services for a project. The agreement prohibits separate agreements in connection with the project by party members or their consultants without prior written approval by other parties. Each party shall be properly licensed in the jurisdiction of the project and maintain project records separate from those of the Joint Venture. A policy board will have the authority to make binding decisions relating to performance, negotiations, reviews, approvals, claims, disputes and financial matters.

Joint Ventures consist of property and capital contributions by each party. These items will be provided in an itemized list with the policy board determining if additional funds are required. Advancements of funds can be made between parties to cover deficiencies. Excess funds shall be distributed to the parties proportionately. Consultants shall only be retained by approval of the board per written agreements and serve as independent contractors to the party that retains them. The consultants shall indemnify the Joint Venture, carry proper insurance, grant intellectual property rights, maintain confidentiality of proprietary information.

Instruments of service are any representation of creative work by the parties or their consultants including studies, surveys, models, sketches, drawings, and specifications [3]. The Joint Venture is the holder of the intellectual property rights, including copyrights. Each party grants the Joint Venture license to use and reproduce this information, however no party shall transfer rights without written consent of the other parties. Public statements and media release are subject to approval by the policy board. Parties shall recognize and respect the contributions of one another, and attribute professional credit of each party and consultant. General liability insurance, automobile liability, workers’ compensation, employers’ liability and professional liability shall be maintained by each party, along with any other insurance required by the prime agreement or policy board.

The Joint Venture will remain in force until the project is award to others, terminate by mutual written agreement, or dissolved upon completion of services under the prime agreement. Debts and liabilities shall survive dissolution or termination. If the Joint Venture does not enter into a prime agreement, no party may enter contract without written consent of other parties [3]. Immediate termination shall occur upon 1) death or disability, 2) bankruptcy or liquidation, 3) suspension of professional license, 4) criminal indictment, or 5) other incapacity to perform.

The policy board is tasked with resolving claims, disputes and other matters between the parties. If the board cannot reach a unanimous decision, a dispute resolution committee comprising a senior member from each party will meet to discuss and investigate to derive a final and binding decision. Any matter still unresolved by that committee shall be subject to mediation administered by the American Arbitration Association in accordance with construction industry mediation procedures. Further failure to resolve disputes shall result in arbitration by the same or litigation in a court of competent jurisdiction [3]. Each party shall be responsible for liabilities, damages, losses and judgments. The Joint Venture shall retain legal counsel for the duration of the agreement at expense of the parties. All information generated, developed or received by the joint venture and its parties is regarded as ‘confidential’ or ‘business proprietary’.

Services provided by each party and their consultants for the prime agreement will be list in a schedule. Interests including compensation and contingencies, along with assets obtained, liabilities and obligations shall be provided as a percentage breakdown. Progress payments are to be made at started of project phases and distributed at regular intervals. Each party shall submit invoices for services and reimbursable expenses. The joint venture shall promptly distribute portions of payments to the parties upon receipt from the client [3].

The principles of contract interpretation include common fundamentals. Contracts must ascertain the intention of the parties and will not be controlled by undisclosed information. The intentions form the foundation of the binding agreement [4]. It is generally enforceable and cannot be ignored or altered. The wording employed will be assigned ordinary meaning, and the actions of the parties during execution are representation of their intentions. Specific terms govern over general ones, and where inconsistent, words govern over figures. The contract is a complete document, in so that one part will not annul another. Knowledge and skill in the negotiation of favorable contracts is beneficial to owners, designers and builders [5].

Partnerships gain a competitive advantage by acquiring new technologies, knowledge and expertise which supports innovation to transform and advance their capabilities [6]. Understanding of the local markets and government agencies further increase that advantage. Connectivity to a network of project financiers, construction labor and material suppliers shares costs and reduces risks. Trust between partners creates an environment for open exchange and conflict resolution while preventing opportunistic behavior. Compatibility between business organizations has a significant impact on satisfaction within the joint venture and affects the capacity to learn and receptivity information.

Discerning responsibility in construction can be an area of major ambiguity [7]. Understanding of the contractual obligations of each party is dependent upon clear language in those agreements. Design conflicts will inevitability arise throughout the most project phases, leading to disputes between owners, architects, engineers and contractors. Legal precedent and contract laws attempt to distribute and properly allocate risk. Alterations and amendments to the default clauses may create conflicts that can prove costly to everyone involved. The design responsibility and contractual risk allocation was determined by court decisions. A flowchart (see Fig. 1) illustrates the enforceability of the owner’s implied warranty in the landmark Spearin doctrine [7]. Exceptions include, 1) a contractor failing to review the construction documents, 2) performance specifications are utilized in place of design specs, and 3) an express warranty or disclaimer was written in the contract.

Construction contracts are often misinterpreted or misunderstood due to the complex and ambiguous language. This legal disconnect can lead to conflicts and disputes that threaten successful project completion. Adequate legal knowledge is essential component of project management. Failure will likely result in contract termination and subsequent damages. The lack of understanding by construction managers regarding contract framework and commercial relationships is a preventable risk [8]. More legal education within university programs would develop that interdisciplinary skill, aid in identifying and responding to issues as they arise, and protect the interests of each party.

Contract review during the bidding and negotiation phase is often ignored or overlooked due to eagerness to be awarded the construction contract [9]. Owners and contractors tend to focus initialing on cost estimates, construction schedules, and means & methods, while avoiding conflict and dispute resolution. Although this approach may seem logical, it can eventually lead to problems later in the timeline as scope creep, change orders, and unforeseen conditions become prevalent. Since most construction companies do not employ an in-house legal team, best practices suggest review of the contracts be done by a competent and rational individual. The process can then be broken down into ‘red flags’, problematic clauses that should be rejected, and ‘must haves’, standard terms including scope, price and schedule.

Several key clauses should be included in the contract to mitigate against ‘company killing’ risks. will A ‘no damage for delay’ clause allows the contractor a time extension for excusable delays, but prevents increase in contract price due to those delays. ‘Differing site conditions’ addresses actual site conditions that materially differ from the construction documents or vary significantly from those expected to be encountered under normal conditions. ‘Waiver for consequential damages’ avoid lawsuits related to lost profits, rent or use, interest and finance charges, additional labor costs, damage to reputation, idle and down time, material escalation, and loss in productivity or efficiency [9]. A ‘flow-down’ clause incorporates obligations of the subcontractors into the prime contract to shift responsibilities and streamline dispute proceedings.

Negotiation of construction contract disputes is the best resolution technique to settle before engaging in legal proceeding. Regardless of precise and thorough contracts, conflicts will still arise throughout the design and construction process [10]. Claims are typically caused by differing site conditions, delays, design errors or changes, different interpretations, accelerated or suspended work, construction failures, additional work and deleted work. Negotiation requires each party to present documentation in support of their claims in attempt to reach an equitable agreement. Over 90% of construction claims are resolved through negotiation in lieu of court settlement. Successful negotiation of claims during construction or immediately after completion avoids arbitration and litigation to settle disputes.

Mediation is essentially a meeting between the parties with a neutral third party in attempt to settle a dispute. This process is intended to expedite a resolution without months of discovery, dismissing potential claims and allowing the return to business operations. An initial decision maker (IDM) or a dispute review board (DRB) should be established at the beginning of a project to form nonbinding determinations [11]. Mediators should have significant knowledge of the construction industry and enough experience to understand the factual and legal issues about the claims. Discussions and statements are confidential and cannot be used in subsequent arbitration or litigation.

The process of arbitration begins with parties selecting an individual or small group to make decisions regarding a dispute. The arbitrator should have significant construction knowledge and experience to understand the claim. Unlike the IDM or DRB, they are not involved with the project and are only brought in when a dispute arises. Arbitrations are not public proceedings, and while arbitrators typically follow case law, their decisions are non-binding like those of judges [11]. Through limited discovery, arbitrations are intended to provide expeditious resolution thus saving money and court costs.

The litigation procedure comprises three stages from claim formation, through claim rejection, into amicable resolution failure (see Fig. 2). Cost overruns and construction delays are usually associated with a change order by the client or a conflict of terms and scope in the prime contract. Differences in legal systems, cultural norms and social practices affect that decision in regards to intellectual property rights (IPR). Research has shown that managers are more likely to choose litigation over alternate dispute resolution (ADR), even though the ADR process seeks a collaborative resolution. Their motivation is often not monetary compensation, but that of ego, revenge, acknowledgement of harm, and retribution for poor conduct [12]. Well-drafted construction contracts are necessary throughout the industry, influencing people and their behavior. However, they are not sufficient to prevent litigation between parties; and poorly drafted contacts may actually promote litigation if adversarial relationships begin to develop.

The AIA Document A141 agreement [13] tasks the Design-Builder (DB)—acting as the authorized representative for the project—to retain an architect, consultants and contractors. The DB shall “perform the work in compliance with applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities,” and shall not be obligated to perform any act which they believe will violate the same (A141, § 3.1.3). The subsequent A142 agreement [14] establishes the relationship with the prime contractor by defining the scope of work, construction schedule and substantial completion date, and the contract sum by appropriate method. This document provides clauses for changes, payments, disputes, and provision, along with enumeration of the contract documents, terms and conditions, insurance and bonds, preconstruction services, and cost estimation.

The term ‘smart contract’ was coined by Nick Szabo in 1994 as “a computerized transaction protocol that executes the terms of the contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental” [15]. Recent technological advancement and the integration of new computer methods like Building Information Modeling (BIM) require new types of construction contracts to address the legal aspects surrounding intellectual property.

As the industry moves from the traditional two-dimensional (2D) documentation towards three-dimensional (3D) and higher-level models, intelligent contracts must be developed to incorporate the exchange of additional data. Construction documents will include not only 2D representations and written specification, but 3D images, 4D timelines and schedules, 5D cost estimates and budget analysis, 6D facility management information, 7D sustainability and energy efficiency calculations, and 8D health and safety data [16]. In order for all the participants to utilize and benefit from these features, intelligent contracts should contain language specific to each.

Figures

Figure 1: Flowchart of design responsibility legal risk allocation scenarios [7].

Figure 2: Stages preceding construction contract litigation [12].

References
[1] Spangler, John & Cazan, Deborah. (2022). Construction Joint Ventures: Essential Terms, Representation Issues and Potential Claims. The Construction Lawyer. Vol 42, Iss 2.
[2] Standard Form Multi-Party Agreement for Integrated Project Delivery. (2009). AIA Document C191. American Institute of Architects.
[3] Joint Venture Agreement for Professional Services. (2018). AIA Document C101. American Institute of Architects.
[4] Thomas, H Randolph. (2009). Teaching Construct Contracts. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction. 1(4): 165-168.
[5] Adeyeye, Kemi. (2009). Teaching Construction Contracts: Mutual Learning Experience. American Society of Civil Engineers. 10.1061/(ASCE)1943-4162(2009)1:2/(97).
[6] Martin, Hector & Emptage, Kareem. (2019). Knowledge-Transfer Enablers for Successful Construction Joint Ventures. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000313.
[7] Hanna, Awad & Aboseif, Eyad. (2022). Clarifying Design Responsibility and Its Risk Allocation in Construction Contracts. American Society of Civil Engineers. 10.1061/JLADAH.LADR-812.
[8] Padroth, Cassandra; Davis, Peter & Morrissey, Michael. (2017). Contract Information Asymmetry: Legal Disconnect within the Project Team. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000231.
[9] Walsh, Kevin. (2017). Identifying and Mitigating the Risks Created by Problematic Clauses in Construction Contracts. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000233.
[10] Yates, J.K. (2011). The Art of Negotiation in Construction Contract Disputes. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000060.
[11] Understanding Different Methods of Dispute Resolution. (2021). Risk Management Program. American Institute of Architects. https://www.aia.org/articles/6456563-understanding-different-methods-of-dispute.
[12] Jagannathan, Murali & Delhi, Venkata. (2019). Litigation in Construction Contracts: Literature Review. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000342.
[13] Standard Form of Agreement Between Owner and Design-Builder. (2014). AIA Document A141. American Institute of Architects.
[14] Standard Form of Agreement Between Design-Builder and Contractor. (2014). AIA Document A142. American Institute of Architects.
[15] Mason, Jim. (2017). Intelligent Contracts and the Construction Industry. American Society of Civil Engineers. 10.1061/(ASCE)LA.1943-4170.0000233.
[16] Hamil, Stephin. (2021). BIM Dimensions – 3D, 4D, 5D, 6D BIM Explained. NBS Enterprises Ltd. https://www.thenbs.com/knowledge/bim-dimensions-3d-4d-5d-6d-bim-explained.