A prominent milestone in the history of joint ventures in the U.S. Construction industry came with the formation of Six Companies, the group that built the Hoover Dam in the 1930s. They came together because no single company at the time could produce a $2 million bid bond or a $5 million performance bond for the project. 

Six Companies won the contract with a bid of nearly $49 million, equivalent to about $1 billion today. The joint venture (JV) went on to collaborate on other large civil projects, and helped create a place for JVs in the construction industry’s business practices.

JVs spread construction risk

The sheer size of today’s megaprojects bring some of the largest contractors together, compelled by many of the same financial factors that drove the members of Six Companies decades ago. One industry observer affirmed that, these days, as many as 70% of billion-dollar-plus projects involve JVs. Whether really big dollars or relatively lesser amounts are at stake, entering into a JV is a proven solution to share the load and spread out construction risk.

JVs based on know-how

JVs also enable contractors to leverage specialty know-how, accumulated through unique experiences, projects and backgrounds. Many contractors have become accustomed to combining their skill sets. Not only is it often more effective to work together, JVs with a breadth and depth of experience and knowledge have a competitive advantage when prospective customers are especially concerned about bidders’ prior experience.

JVs leverage home-field advantage

One great impetus to joint-­venturing in construction can be likened to the difference between playing a home game or an away game in any team sport. Whether because of a distance in latitude and longitude or cultural differences, a contracting company can quickly find itself in unfamiliar or unfriendly territory. In the mid-20th century, the rare contractors that took on projects outside of their hometown were often referred to as “traveling contractors,” and the most common challenges they faced were “tough locals.”

Centuries after moats around medieval fortifications were drained, backfilled and grown over, invisible barriers in modern settings continue in all types of human endeavor. JVs between contractors have become a proven way to breach the barricades around inhospitable places.

ECs and master systems integrators

While all the old reasons for forming a joint venture still remain, new, very modern motivations are cropping up. For example, an electrical contractor might choose to form a JV with a master systems integrator (MSI) rather than another electrical contractor because the MSI can coordinate the combination of all building systems within a facility and ensure that they function in a seamless, optimal manner. 

There is increasing demand for this specific expertise. The demands on an MSI to stay abreast of advancing technologies, adhere to the demanding requirements of product management and comprehend the intricacies of interacting systems often becomes a competitive advantage for partnering contractors.

JVs with service-oriented spin-offs

Lately, there has been quiet discussion in some quarters about electrical contractors “spinning off” their service and maintenance department into a new entity dedicated wholly to service-related business. This type of move mirrors the strategy of legacy companies in other industries that split their organizations in two. They maintain their traditional “cash cow” commerce through one entity and unleash the second to pursue new opportunities. They then have the freedom to expand and innovate without risking their main source of revenue.

That second entity, in the case of electrical contractors, would be freed up to engage in JVs. If they pair with other forward-­leaning companies, they can take things even further. That is just one more example of how JVs can easily become catalysts for progress. Who knows if the next big innovation, or “Hoover Dam,” will be thanks to a JV?

Andrey Popov/stock.adobe.com