by Jeffrey C Kadlowec, Architect
Abstract
Collaboration between design firms and construction organizations through the cooperative work of project team members is key to improving performance, increasing competitiveness, and providing greater capabilities while sharing risks and rewards, reducing overall costs, and enhancing total value. Joint venture agreements bring together multiple parties toward common goals to complete larger and more complex construction projects. These types of contracts should clearly define the scope, schedule and cost of a project, while outlining roles, duties and expectation of party members. To ensure project completion, lean construction principles provide guidelines for promoting loyalty, aligning stakeholders, creating hierarchy, addressing conflicts, and developing an environment of effective communication and sharing of information.
Keywords: joint ventures, contract agreements, lean construction
Joint Ventures
Cooperation between interdependent project team members should increase efficiency and productivity. Collaboration of design firms and construction organizations will improve performance, provide greater technical capabilities, increase competitiveness, share financial risk and rewards, reduce overall costs, and enhance total value [Bakri 2022]. Through joint venture agreements, various companies can combine their knowledge, skills and expertise to undertake and complete more complex construction projects. Many developing countries lack the personnel and resources necessary for unique, large-scale and highly specialized work. Formation of joint ventures could pool resources and diversify risks, allowing foreign investors to support and build these local economies.
Joint ventures provide a platform for sharing and transferring knowledge, experience and information, combining competencies and complementary resources between participants, allowing for the development of new products and services [Bakri 2022]. Although many benefits have been seen from these types of arrangements within organizations, much hesitation remains within inter-organizational collaborations due to general mistrust, loss of project control, and potential theft of intellectual property. However, studies have shown that no one person retains all of the ideas generated from a partnership and much of the gains are lost as these organizations are dissolved following project completion.
The success of construction projects is dependent upon proper managerial skills, adequate financial resources, appropriate technology, equipment and materials, and skilled tradesmen and general laborers. When any of these resources are not readily available, the formation of joint ventures is necessary to create a short or long-term partnership between two or more companies [Minja 2013]. The demands of owners and clients, competitiveness of the industry, complexity of projects, and advancements in technologies have all contributed to an environment that is ideal for these types of arrangements. Managing and operating joint ventures are however more difficult than traditional general contractor / sub-contractor relationships, so entering new markets, increased project scale, meeting financial objectives, organizational learning opportunities, and reduced liabilities are the strategic motivators [Minja 2013].
Construction is a unique industry that requires high levels of expertise to overcome many challenges [Mishra 2022]. Most construction companies tend to specialize in specific trades or project types, and are unable to provide all the resources necessary to complete a project. Similarly, architecture and engineering firms typically focus on individual market sectors and develop a design niche. Joint ventures—whether local or foreign—bring those entities together in collaborative ways.
SWOT analysis by [Mishra 2022] revealed the following: 1) Strengths – improved technical capability, leads can execute work in lieu of subs, combining resources to match competition; 2) Weaknesses – only formed to fulfill bidding requirements, poor practice of inactive partnerships, partners may not contribute per agreement, misunderstanding purpose of agreement; 3) Opportunities – contractors gain knowledge from one another, larger construction projects, sharing of technology, formation of professional network and database system; 4) Threats – profits and losses carried by managing partner, potential for bankruptcy, executed by least profitable / loss-sharing partner, no detailed agreement regarding management and implementation. Therefore, it is recommended that each participant should develop their own internal structures, a management committee be formed to steer decision making, and joint ventures should be limited to three parties with one having controlling interest and others a minimum of 25% share [Mishra 2022].
As the construction industry becomes increasingly globalized, there are opportunities for emerging economies to acquire and absorb new technology. This transfer of knowledge supports innovation, expands international business, and develops local economies [Scaringella 2017]. Unique designs, complex environments and unpredictable work make the transfer of knowledge difficult, leading to low absorption and poor performance. Management of these developments is therefore critical with joint ventures being the best approach to facilitating that advancement. Knowledge transfer through joint ventures is causing a paradigm shift with respect to competitiveness of companies from tangible towards intangible assets [Jayady 2017]. The importance of organizational learning is an important factor in strengthening corporations through increased market intelligence and their abilities to meet market demands.
Affordable housing is the key area where greater attention must be focused. The demand to supply ratio is ever increasing with the rapid urbanization of middle-class incomes and progressive growth of populations [Wangora 2019]. Sustainable design in this market is marred by challenges due to current regulations and guidelines, high-cost and shortage of land in urban areas, increasing interest rates, rising costs of materials and labor, and slow adoption of building technologies. Joint ventures seek to establish mutually beneficial arrangements through expressed agreements with common purpose, shared profits and losses, and equal control of projects. Cooperative relationships, financial measures, strategic means, and learning methods are the performance metrics for evaluating these business alliances and their ability to achieve those goals [Twum-Ampofo 2019].
A myriad of factors will affect design processes and construction procedures. Management of these conditions determines the success (or failure) of a project. Ineffective cooperation and vulnerability to external risks usually results in poor performance [Seiso 2023]. Addressing potential issues early, having strategic plans in place, and developing solutions as problems arise will ensure projects stay on-time and within budget. Mutual understanding, trust in partnerships, balanced contractual agreements, commitment and cooperation, financial stability, proper communication, and favorable government regulations are listed by [Seiso 2023] as militating elements; while elimination of corruption, bribery and fraud, control of client demands and project variations, maintaining contractual obligations, settlement of disputes, clear definition of roles, and adequate compensation are essential factors. This study concluded that understanding policies, organizational culture, sharing ratios, economic viability, conflicts of interest, and operational constraints are key components that should guide stakeholders, design professionals, and construction firms.
Risk assessment can be divided into management, legal, financial, technical, market, and political [Lu 2020], each with potential to affect the time, cost and quality of construction projects. Infrastructure improvements and large-scale projects are extremely complex, making selection of the most suitable architects, engineers and contractors difficult. Project managers must already have—or learn and gain— a broad understanding of all facets of the design and build out. Literature review, personal interviews, pilot surveys, questionnaires, mean scoring, and factor analysis are purposed research methods to develop proper strategies [Lu 2020].
Every construction project is dependent upon a series of contracts. This is especially true with joint ventures which require collaborative agreements. Those contracts must therefore be comprehensive and enforceable [Mirzaeee 2022]. They must clearly define the scope, schedule and costs of projects while outlining the roles, duties and expectations of associated party member. Handling of contractual breaches is not simply a matter of performing or not performing clauses. Penalties and legal remedies must be written and enforceable. Alternate solutions are often sought after unexpected events to maintain progress and ensure successful completion.
Despite significant benefits, the transition towards sustainable lean construction has been slow and arduous. Most of these failings are due to steep learning curves, expensive technology and equipment, and a general resistance to change within the industry. The readiness of organizations to adopt new practices is an indicator of potential integration. As with any new development, learning is the initial step towards understanding and acceptance. The process of integrating lean principles requires commitment from top-level management and leadership towards a future vision to mitigate risks of failure [Prasad 2023]. This creates a culture within an organization the engages employees and human resources with a focus on building interpersonal and customer relationships. Purchase of the proper tools and training on new procedures will facilitate these changes. Open communication between management and staff will encourage horizontal and vertical exchange of knowledge and information, thereby increasing the likelihood success throughout the project lifecycle.
Investing in the potential and capabilities of personnel is a core principle of lean construction which perceives people as the driving force behind most projects and ventures [Shehab 2023]. The fifth industrial revolution (ID5.0) will further exploit technology in a human-centric, sustainable and resilient fashion, previously overlooked by Industry 4.0 robotics. Wearable sensors—utilizing GPS and RFID technology—allow for real-time monitoring and data collection which can then be analyzed to recognize inefficiencies and optimized performance. This integration will change construction workflow while considering the moral and ethical impacts to workers along with their safety and productivity to continuously reduce waste and errors [Shehab 2023].
The goal of construction managers remains delivering the best value to their clients while overcoming ever increasing challenges and complexities. International joint ventures are particularly difficult due to political, legal, economic, social, and cultural expectations [Oswald 2018]. Managing conflicts within interpersonal relationships, timely resolution of disputes, identifying and developing shared goals, continual evaluation of team performance, and fostering a spirit of collaboration and cooperation are critical areas where attention must be focused. Promoting employee loyalty and motivation, addressing confrontations and conflicts, aligning stakeholders under common goals, avoiding confusion in hierarchy, creating an environment for effective communication, and fostering the willful sharing of knowledge and resources are the challenges faced by project managers as they prepare for future joint venture projects utilizing lean construction principles [Oswald 2018].
References
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