Article
Construction industry joint venture audit and compliance considerations
Sept. 8, 2022 · Authored by Stephen Bacchetti, Chris Gewain
A construction joint venture can be incredibly beneficial for construction companies working together on a large project. However, there are a variety of auditing, reporting, and compliance challenges to be aware of.
Having processes and controls in place from the beginning, such as defining cost of work definitions and consistent labor rates among parties, and real time project reporting aligned with key performance indicators (KPIs), could help improve transparency, maintain compliance, and increase accountability between the contractors and owner.
Why do contractors enter into a construction joint venture?
A joint venture entity made up of two or more construction companies provides individual members of the entity a variety of benefits and opportunities. This includes resources, capital, transparency, and relationships.
Resources
One of the biggest reasons why contractors enter a joint venture is to gain access to resources, such as equipment, knowledge, experience, and projects outside a company’s typical geographical footprint.
Combining resources with one or multiple construction companies, along with the successful completion of a project, provides an opportunity for each party to bid on larger, higher visibility projects in the future. A successfully completed project can also earn companies a reputation of doing quality work.
Given the continued labor shortage and because the construction industry is so competitive, labor is one resource that’s especially important. A joint venture provides the opportunity for each company to share talent and reduces the burden of hiring additional skilled labor.
Capital
An individual construction company may not have the equity to handle a large project or to meet bonding company requirements. A joint venture allows multiple companies to come together with their respective balance sheets, which can show bonding companies they’re in a key position to successfully complete a project.
Transparency
With proper planning and controls established, organizations can see first-hand what other joint venture members are doing. This allows all involved members to implement best practices they’ve learned or to see how certain processes could be done differently within their respective companies.
