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More large projects to be delivered as joint ventures

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by Peter Caulfield last update:Sep 15, 2014

Anecdotal evidence suggests many joint ventures (JVs) are being formed in Canada to take on large infrastructure construction projects.
The largest roadbuilding project in Alberta’s history is being delivered by a joint venture. The $1.8 billion final phase of the Anthony Henday Ring Road project (above and on the feature cover) is being built as a public-private partnership by Capital City Link General Partnership (CCLGP).
The largest roadbuilding project in Alberta’s history is being delivered by a joint venture. The $1.8 billion final phase of the Anthony Henday Ring Road project (above and on the feature cover) is being built as a public-private partnership by Capital City Link General Partnership (CCLGP). - Photo: Bradley Fehr

 

Some construction industry experts believe the trend will continue and that there will be even more JVs in the future.

Michael Atkinson, president of the Canadian Construction Association, said there are several reasons why even more infrastructure projects will be delivered as joint ventures.

“The projects are getting larger and more complex and riskier, and their delivery needs bigger organizations with more capacity and more skills,” Atkinson said.

“There is a growing number of projects that are $1 billion and more. Until recently, we saw very few that large.”

Another reason, said Atkinson, is that the public sector has increasing capacity challenges.

“Many senior public sector managers are retiring and much institutional knowledge is going with them,” he said.

“At the same time, the demands on the public sector are increasing. Canada’s infrastructure of roads, transit and health and community facilities is aging and in need of renewal. One of the results of these converging trends has been the increasing tendency to bundle several infrastructure projects into one big project.”

Third, many public sector owners believe they can save money by hiring a single, full-service company to design, build and manage the whole project.

“These trends are being facilitated by new technologies, such as BIM (building information modeling), which enable companies to combine different aspects of the design, building and maintenance process that traditionally have been done separately,” said Atkinson.

In B.C., two of the highest profile recent infrastructure projects – the Port Mann/Highway 1 Improvement Project and the South Fraser Perimeter Road (SFPR) – have been joint ventures, said Mike Demers, a partner with Vancouver law firm Jenkins Marzban Logan LLP.

“The bridge is a joint venture between Peter Kiewit Sons Co. and Flatiron Constructors,” he said.

“And, the road is being delivered by an entity called the Fraser Transportation Group.”

The group is made up of equity partners ACS Infrastructure Canada Inc. and Ledcor Industrial/Mining Group Ltd., and Dragados Canada Inc., Ledcor CMI Ltd., Belpacific Excavating and Shoring Limited Partnership and Vancouver Pile Driving Ltd. as the members of the design-build contractor.

In addition, said Demers, many independent power projects in B.C. are being built as JVs.

“The Long Lake Hydroelectric Project, north of Stewart, advertises that it is being done as a joint venture between Regional Power and Premier Power Corporation,” he said.

Another example of the growing presence of joint ventures, said Demers, is that the highest profile construction law case in the last five years, Tercon v. B.C., arose because the province granted a contract to a joint venture between Brentwood Enterprises Ltd. and Emil Anderson Construction Co., although the joint venture was not, in fact, a qualified bidder.

Demers said that although business combinations such as these are commonly called joint ventures, JVs are not, in fact, actual legal entities.

“There are various ways for companies to join forces on a project,” he said.

“One of the most common is a partnership, which typically ends when the project is over. A second way is the creation of a project-specific company in which the partners are the shareholders.”

Demers said the specifics of each joint venture are determined by what the participants believe will achieve the maximum risk management and tax advantages.

“It all depends on what is required under the particular circumstances,” he said.

“As the circumstances change, so do the different models.”

Demers said the benefit of joint ventures is that they enable contractors, who may not be big enough or risk-tolerant enough on their own, to put together a team and obtain projects they might not otherwise get.

“Contractor A, who might be really good at heavy civil works, but not so good at earthworks, could team up with Contractor B, who is a great earthworks contractor, to create a strong team,” he said.

“Because they both have skin in the game to ensure the success of the project, the alignment of their interests should prevent many of the disputes that commonly arise in the more traditional situation where Contractor A subcontracts the earthworks to Contractor B.”

Whatever the benefits of joint ventures, Cris Munro, of CM2 Ventures Inc. in Langley, said the participants need to remember that their individual reputations and credibility are on the line.

“Many joint ventures are short-term arrangements,” she said. “The players should remember the project’s owners want to know the contractors will be responsible if anything goes wrong once the partnership is dissolved.”

last update:Sep 15, 2014

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