Join venture cannot be formed after commission has been secured?
Q: A small architectural firm is considering replying to an RFP for a local high-rise project. The partners recognize the importance that this RFP could have for the future of the company, but at the same time realize that they don’t have the staff nor the expertise to properly go through with the project, in case they secure the commission. What’s the best course of action?
Answer that is given:
- A. Not respond to the RFP due to the lack of staff and expertise
- B: Form a joint venture with a competing firm that has the necessary experience and personnel
- C. Hire new employees with experience in this type of project so that they could start getting used to the office policies
- D. Hire a new partner that has a lot of experience with this type of project
The correct answer is B. But to my understanding, a Joint venture should be formed for advertising purposes before the contract is awarded. Therefore, after the commission has been secured, the firm cannot go and form a joint venture. So the more appropriate answer should be C instead of B. The company wants to grow in this direction so hiring new staff is good for that purpose. Any thoughts?
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Answer 'B' is correct.
Joint ventures are contractual, legal relationships similar to partnerships, so should therefore not be established until after the contract has been secured. Think about it like this: if you're establishing joint ventures simply for RFP responses, you are going through the trouble (and potential liability) of establishing a legal entity for what may only be a 10-20% chance, or less, of actually getting the job. That'd be a terrible business decision.
Instead, what multiple firms should be establishing during an RFP process is a teaming agreement (a.k.a. a partnering agreement or memoranda of understanding). Teaming agreements are used to address matters in connection with the pursuit of projects not yet obtained by the architect, often as part of the marketing effort to acquire a project. They create a strategic alliance between professionals to pool unique capabilities and experience and provide a foundation for developing appropriate consultant (C401) or joint venture (C101) agreements.
So in summary, first a teaming agreement is established while pursuing a project, then - in the event that the team wins the job - a joint venture or consultant agreement is established.
Hope that provides some clarification on the process and purpose. If you're looking for more info, refer to chapter 17.2 of AHPP.
Regarding answer 'C,' hiring new staff for the purpose of a single project may lead to a damaging cycle of hiring and firing employees while waiting for the workload to stabilize. A better option would be to hire independent contractors for the project, who can provide additional help/skills/expertise with no strings attached. Contractors can be utilized to manage a fluctuating workflow without having to hire and fire employees, reducing a firm's potential exposure. Additionally, the portion of answer 'C' about new employees "getting used to the office policies" is not relevant to the question.
For more on the topic of firm collaboration and staffing, refer to chapter 5.7 of AHPP.
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