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JOINT VENTURES General Contractors’ Risk Management Perspective.

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Presentation on theme: "JOINT VENTURES General Contractors’ Risk Management Perspective."— Presentation transcript:

1 JOINT VENTURES General Contractors’ Risk Management Perspective

2 REASONS FOR JOINT VENTURES Size or complexity of project Surety Capacity JV partner client relationship / political connection Meet MWBE or other federal / state / local bidding requirements JV partner has unique skills Geographical location of project Meet aggressive schedule challenges Limit participants’ liability 2

3 TYPES OF JOINT VENTURES Integrated Joint Venture  Partners share all profits and losses in proportion to their % interest in the Joint Venture  Partners share all resources and personnel Non-Integrated Joint Venture  No sharing of profits or losses  Each partner provides a specific scope of work and is responsible for the profits from such scope of work  Each partner is solely responsible for their scope if work  Example: a “shell” joint venture Combination Integrated & Non-Integrated Joint Venture Silent Joint Venture  One or more of the partners is not disclosed 3

4 JOINT VENTURE INSURANCE GOALS Provide an efficient, integrated, cost effective insurance program Provide stable, long term insurance program Provide broad, comprehensive coverage for the JV Claim management services to manage / mitigate claims Loss Control services 4

5 TYPICAL INSURANCE COVERAGES INVOLVED Workers Compensation General Liability Excess / Umbrella Auto Liability Professional / Pollution Builders’ Risk Subcontractor Default 5

6 INSURANCE STRUCTURES PROJECT-SPECIFIC POLICY Benefits Liability claims tied to JV policy One claims adjuster Unified defense One source for certs Mutual coverage / limits Protect partner’s master programs Preserve workers compensation exclusive remedy defenses Prevent action – over claims 6

7 INSURANCE STRUCTURES PROJECT SPECIFIC POLICY (continued) Concerns Cost Which broker will market / place the JV insurance JV financials may be open longer for claims that do not resolve quickly Duplicative cost if partners’ carry master program rates on their payroll How to share costs of partner’s master program 7

8 INSURANCE STRUCTURES ADD JV TO EACH MEMBERS POLICIES Benefits Costs Simple to accomplish Concerns Coordination of coverage issue – non-current coverage or limits More than one policy responding – claim coordination and costs Who responds to a claim again the JV only? Exhaustion of limits How to charge premiums Unequal deductible exposures Opens door for action-over claims May lose workers compensation exclusive remedy defense 8

9 INSURANCE STRUCTURES ADD TO THE MANAGING PARTNER’S POLICY Benefits Easy and fast Only one policy responds Unified defense Concerns Managing partner’s limits are exposed to all JV claims Managing partner’s policy may not cover other partner(s) as additional insureds 9

10 SURETY CONCERNS Size and scope of the project JV experience for type of project JV partners may have the same surety Surety will want to approve the JV partner One performance / payment bond to the owner. Each partner pays their % share of the bond using their individual surety rates Each partner may have 100% indemnity to their own sureties No bonding from related entities (subcontracts from a partner or partner-owned entity to the JV) Who issues surety letters? Who issues the bid bond? 10

11 LIABILITY OF INTEGRATED JVs TO THIRD PARTIES JV partners are liable to third parties for acts of any other member of the JV JV partners may be held liable to third parties for breach of warranties and construction defects after the JV has terminated JV partner may not limit their liability to third parties to the amount of ownership in the JV JV partner’s liability for negligent acts of the JV acting in the course of the venture survives dissolution Note: The type of joint venture can change the type and amount of liability that flows through to the partners 11

12 JV ADMINISTRATION / CLAIMS / SAFETY / LEGAL Identify risks of the project Subcontract administration Subcontract certificates of insurance JV agreements  Conflict Resolution - vote by % share or complete consensus. (What if lead partner wants to make a business decision best for the lead partner’s business but not best for the JV)  Clearly outline the insurance structure and procurement responsibility in the JV Agreement Administration (auto ID cards, payroll, leased equipment from the partner to the JV) 12

13 Lessons Learned 13


15 5 Tips 15

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