1.1

Joint associations are used in order to produce synergy by combining the skills of the two companies involved. They are a means by which firms can enhance their competitive positions. In effect achieving more together, than the two companies on their own.

1.2

There are not many, if any, advantages for the client. The contractors' reasons are:

1. Mega project
2. Risk sharing
3. Combination of resources
4. Technology transfer
5. Local politics or legislation (Making facilitation payments)
6. Reduce the tender list
7. Taxation
8. Research and development

2.1

An initial protocol or memorandum of understanding will be needed long before the enquiry is received.

2.2

You must have a signed document. However, you won't want to declare it in case the client puts someone else on the tender list instead.

2.3

It is better to have separate agreements for different objectives rather than one big contract agreement. Agreements needed are:

1. Joint venture agreement
2. Joint stock company. Some countries insist on being a company for tax purposes. If you are a company, do you incorporate locally or offshore? A shareholder's agreement will be needed.
3. Articles of association
4. Bylaws
5. Seconding agreements
6. Services agreement
7. Technology transfer of licensing agreements
8. Business plan
9. Licenses and registrations
10. Agreement for doing work back home
11. Association directives; see 6.12 below.

3.1

The compatible goals can be summarised as ‘half a cake is better than none.’ However, shared and attainable goals are essential criteria for success. Goals may only be congruent up until the moment the contract is signed. From that point onwards the partners' objectives will diverge.

3.2

One partner will usually have a technical capability that the other partner does not have – and vice versa. They then spend their time trying to acquire that capability from each other! Be wary of a prospective partner negotiating in order to obtain data without any intention of fulfilling a deal.

3.3

One partner will invariably be dominant in terms of financial strength.

3.4

Ideally the two parties should have common corporate values, with compatible cultures. Without top management commitment, the venture is doomed. Compatibility and commitment are essential elements for success.

3.5

Set objectives for the alliance. Collaborate with your competitors – and win.

4.1

One has to ask, ‘Are they a good way of sharing and reducing risks or a way of creating new risks?’ It is not half the risk because there are two companies. ‘Jointly and severally liable’ means taking on the liability for the partner's risks. If there is a problem, the client will go for the partner with the strongest balance sheet. Further, if the joint venture company thinks it is your fault, you may find it difficult getting money from your partners. The risks are:

1. Additional risks to normal contract risks.
2. Turnkey liability without total control.
3. Increased risk size compared to the company size.
4. The company's risk capacity is reduced.

4.2

You are in fact training a competitor!

5.1

Establish the objectives and priorities of your own company.

5.2

Gain and maintain commitment and support from top management.

5.3

Prepare budgets and commit resources.

5.4

Allocate sufficient time.

5.5

Establish a negotiating strategy.

5.6

Follow it through.

5.7

Resolve all the key issues (see below) before entering joint associations. They must all be established before the prospect of the project is evident.

5.8

Do not take shortcuts. There is no substitute for clear agreements and documentation. Marry in haste – repent at leisure!

5.9

Do not get the cart before the horse.

5.10

Complete the documentation and legal formalities.

5.11

Commence operation in an orderly fashion. It will take time and effort to get systems and procedures (for say, cost control, man hours, and so on) working.

5.12

Re‐evaluate the joint operation when the project is nearing completion.

6.1

The agreement which will set out the association's undertaking to work together for common objectives will normally include:

1. The target cost estimate (the contractual budget)
2. The acceptance criteria for schedule and quality
3. The sharing of influence over the risk versus reward criteria
4. The sharing of the benefits of the risk and reward scheme

6.2

Define the technical and geographical scope for each entity.

6.3

Agree which party will have overall control and define the contribution of each party. Comparable contributions are another essential for success.

6.4

Agree the pricing components and what is or is not included in overheads. How do you know that the other party has given you their best price?

6.5

Agree the capital contributions and financial support provided by each party and the procedure for access to financing.

6.6

Define how financial control will be exercised. See 9.0 below.

6.7

Define how licensing or technology transfer will operate.

6.8

Make sure that the other party is committed exclusively to your company. Only work with each other on the type of work to be performed.

6.9

Agree how you will terminate and disengage from the association. In other words, how will you get divorced? How will you carve up the cake when you separate?

6.10

Create a mechanism for dispute resolution. A ‘gin and tonic’ clause

6.11

Create a management organization structure involving senior managers from each party – a project board or steering committee. Its purpose is to:

1. Reinforce corporate commitment to the association
2. Promote association principles
3. Review cost and schedule progress
4. Resolve disputes which cannot be settled at project level
5. Aid the resolution of external issues
6. Encourage maintenance of association behaviour

6.12

A set of association directives will be needed. You need internal procedures that are well established for:

1. The type of work to be performed.
2. What other projects can be tendered.
3. How risks will be shared.
4. Establishing signature authorities and delegation limits.

8.1

For the joint association to work effectively, it will be essential to have convergence of the different systems and procedures. This will involve a process of continuous improvement.

1. Whose planning system will be used?
2. How will man hours be monitored?
3. Agree cost monitoring/reporting for reports to the client and internal to the joint association ‘partners’.
4. What cost code structure will be used?
5. Develop project procedures.

9.1

The joint association ‘partners’ must agree who pays for what. If too many costs are charged to the joint association, it could create a situation where there is no profit. You need to get into all the detail. For example: who will buy the paper clips?

1. What costs can be billed into the joint association?
2. What costs are reimbursable by the client?

9.2

How is money to be transferred out of the association? In difficult parts of the world, arrange to get money out on the basis of a unit rate for each individual sent out to work.

9.3

Who has the final say on pricing? How will tender costs be shared if the joint association does not win the contract?

9.4

How will any performance and other bond be apportioned? Avoid a total project value for performance bonds or the client will end up with more than 100 per cent, and the client will want some from both of you.

9.5

Decide on the requirements for insurance and bank accounts and so on. How will tax be handled?

10.1

Compatibility and commitment.

1. Mutual trust. Be equitable. Resist the temptation to score points.
2. Non‐adversarial relationship.
3. Flexibility and adjustment to change. Well‐developed organizational learning systems are needed.

10.2

Comparable contributions.

1. Joint problem solving
2. Convergence of systems and procedures

10.3

Shared and attainable goals

1. Win/Win strategy
2. Good planning of workload
3. Joint judgment of performance

10.4

An essential element for success between the client and the contractor is an equitable balance between risk and reward. There is no preferred form of contract, although it is most likely to involve reimbursable elements with incentives through sharing of cost savings.

10.5

Problems are:

1. No horizontal integration
2. No ability to coordinate infrastructure
3. No domestic market
4. Avoiding competition with parent companies