Understanding Joint Venture
高銘堂MT Kao／財團法人中興工程顧問社 執行長 President, Sinotech Engineering Consultant, Inc.
發表於Vol. 48, No. 4 August 2021， 土木水利 第四十八卷 第四期
The Historical Background and Its Evolvement, Public Works Tender in Taiwan
There were days construction resource scarce and the companies small and weak in Taiwan; the government decreed that “design” should be separated from “construction”, “civil” from “electrical/mechanical”, for local public works tenders. Build according to the drawing provided by the consultants through the owner was the norm, and the contractors welcome the owners to supply bulk material like cement and rebar to relieve financial overburden.
隨著國家經濟持續發展，工程建設變得龐大複雜，社會環境也不再像從前一樣單純，政府單位面對日趨繁瑣、嚴苛的開發與採購法規，必須重新思考工程招標辦法，就契約範圍、競爭模式、風險分擔比例等，依照現實需求做合理調。也因此在近二、三十年公共工程招標，出現了異質結合、共同投標、統包、BOT，或各種PPP（Public Private Partnership）等承攬方式。
Public works then become sizable and sophisticated, concerned authorities busy to untie knotty regulations to balance development initiated by government have to revise the tenders for extended premise, varied evaluation modes and risk sharing schemes to smooth projects execution in a society presumed to build Tower of Babel. So, only in recent decades the tender laws are changed for more options such as joint tendering (by different business line, or the same line), turnkey, BOT, or various kind of PPP.
However, a mistrustful public, preoccupied with the populist idea that the lowest tender should win, will not be happy to see anyone awarded the contract through evaluation process stray from the conventional way. As long as there would be witch hunts following misses in public works, the officials will become hesitate to try new ideas, including to import advanced technologies from the international firms for foreign - local venture. It’s the reason why the change in government procurement law and public work management system is slow.
The Difficulties that a Joint Venture May Have Encountered
According to the procurement laws in Taiwan, the Joint Venture means the Joint Tendering by suppliers (or contractors) of the same line of business or those of the different line. While it remains ordinary commercial decisions for international firms, the authorities in Taiwan are careful and only to allow joint tendering before he’s sure there won’t be any concerted action taking place in the industry. Usually the tenderers are requested to sign a Joint Tendering Agreement with a given form to reaffirm the authorities that they will be abide by the laws.
共同投標協議書所規定的這些要廠商簽署、遵守的簡明條款，主要是去規範「Joint Venture」的大框架，如承商的基本資格、彼此的分工、承攬的比例等。至若執行階段對「Joint Venture」的管理，則大致回歸到契約本身。與針對單獨廠商的傳統工程契約相比，「Joint Venture」廠商除了要負更多的介面協調責任外，並沒有什麼不一樣。但是廠商在漫長的履約過程中可能面對什麼樣的風險或問題，在投標時就必須要看明白，更要了解將來「Joint Venture」遇到問題後，業主依「工程契約」或「採購法」冷硬的規定裁決事項，相較於傳統工程會不會更嚴苛？
The given clauses in the Joint Tendering Agreement direct the tenderers to fill in their qualification, scope of undertakings and proportionate share in the project, which, the owners considered as fundamental. Anything that the tenderers wish to explain for their approach will be regarded as deviation and the tender rejected. Questions made to the Owner at or post the tender will be answered with interpretation in conformity with the “Procurement Law” and the” Contract” (between the Owner and the JV). Such a practice suggest that the Joint Venture have to assess all the risks implied in the future during performance within short tender period. Also, it is noted that the decimation of interfaces and uncertainties between the partners means the Joint Venture always will have more problems in execution compared to the traditional contracts administered by the Engineer or the Owner themselves.
採行「Joint Venture」履約方式的工程，通常會是較大、較複雜，本身就有較多的問題。一般人誤會這或與「Joint Venture」有關，其實並不蘊涵因果關係（correlated but not causation），所以我們不必去討論。真正因為「Joint Venture」的型態，廠商可能遭遇的問題大致有兩類：
Usually, projects eligible to allow the Joint Tendering must be big and complicated, and by nature tend to have more problems. People may have impression that JointVenture will bring in more problem is not true, there may be correlation but not causational. So, it’s not necessary for the owner and the contractors to avoid JV. Two categories of problems are often seen in a Joint Venture:
(1) companies of different systems and ideas have to work out a grand project, and the problems of efficiency loss emerged and must be managed.
(2) 工程本身或市場形勢發生變更， 個別的「Joint Venture」成員，無法或不願意承擔原來分擔的風險。
(2) the project, the market or the members themselves change, the result can be that one or several of the Joint Venture member(s) won’t bear the consequence stemmed from the risks appeared.
「Joint Venture」的法律地位，應適用於台灣民法的第667 條至第699 條「合夥」等規定。要注意的是它只以「短期」的方式存在。如果希望長期運作，就是要登記公司。就營造業來說，必須取得特許，實績也要重新計算。換句話說，登記公司的業務承攬與執行，法律上與原公司無關；而又因為成員廠商參與的是個別工程，與其他成員的結合也是臨時的，卻要針對工程與其他成員一起，對業主共負永久責任。所以實務上也要注意到某種程度的切割：法律與契約責任、稅負、資產處理、JV 人員聘僱法律義務、銀行帳戶、執照、准證、智慧財產權，以及JV 協定終結前無法避免的相互保證等，也就是前面所談到合作與風險問題的處理。相較於傳統工程契約，這些新問題更需要智慧與經驗來協助解決。
The legal status of Joint Venture is mentioned in clause 667 to 699, Civil Code. But in Taiwan, Joint Venture is permitted to exist on temporary basis. For construction industry the effort to register it as a new company has no meaning as license to do construction work is difficult to apply without any completion records. The contractual requirement to accept Several and Joint liability toward the owner despite how small scope of undertaking will be will haunt the members for participation. The same reason for the minor partner that it has to clear carefully the responsibility in the Joint Venture for big project: contract, tax, asset, employment, bank account, license, intellectual property right etc., particularly for people accustomed to conventional single responsibility contract.
The Benefits Brought by Allowing JV Formation in the Tender
If the owner accepts companies of the same or different business lines to form Joint Venture for tendering and contracting, work load and cost for interfaces coordination can be relieved. The liberty to allow companies to select partners further lower down the possibility that one of them may not perform the works as people know each other will form a team now. Sometimes international companies complain to the owners that in order to include local partners for technology transfer they need to manage the inefficiency arising out of Sisyphus communication, it can be convincing that the owner will listen and consider also to save additional travail required for Joint Venture tendering so as to omit the policy to allow foreign-local Joint venture in the tender. Regrettably it will hurt the opportunity that an industry will undergo a metamorphosis.
Joint Venture can be an effective regime to supervise foreign and local cooperation allowing the owner to monitor the progress and understand whether or not the natives will be trained properly conforming to the government policy budded in the tender stage. Mechanism that combine severe penalty and the outcome will be useful; but flexibility shall be given to help the Joint Venture to solve the problem when it’s proven that they’re sincere to advance the technology transfer.
要更進一步探討「Joint Venture」組織的特質，以及它進入公共工程究竟會發生什麼作用，可以先了解個別廠商參加「Joint Venture」有什麼好處？首先異業廠商之間的合作，如前所說，可以減輕業主介面管理整合工作、降低工程風險。如果團隊是由廠商主動組成，大家可以找制度、經營理念比較相近的公司，以避免未來的糾紛與效率損失；而且因為彼此熟悉，對另一成員承擔風險能力的評估會比較實在。反之，如果業主就各異業分別招標，廠商會更加擔心平行承商施作不良的牽累，投標時需要將此機會成本堆疊上去。
It will be useful to explore the structure and operation styles of a Joint Venture for the benefit they may have brought to public works; and it will be more evident toknow the reasons why companies want to join the team as a member for various reasons. For Joint Venture allowing contractors from different business line to tender, the liberty for companies to select partners will be advantageous to the owner to avoid efficiency loss and unnecessary dispute; meaning tremendous price down.
For Joint Venture consist of contractors from the same business line, many owners become meticulous thinking of reducing of the number of qualified tenderers if some of them permitted to group together. But it’s not a justifiable decision because many of the companies prefer to: share both the capital and risk with others, learn from partners to improve their technical and managerial skill, know different vendors/subcontractors in the market, fortified itself with other’s completion records, and make additional usage of resources that will otherwise be going idle.
但就業主單位而言，開放「共同或聯合承攬」的直接效益，如減低工程成本，社會大眾不一定從標價上就看得出來而給予正面評價，反而會指謫這是把借牌漂白，所以有時業主單位會比較保守。而就成本與進度而言，除非工程夠大，可以抵消「Joint Venture」組織通常會有的成員合作不易，效率不彰等問題，業主單位總希望面對的是單一窗口。所以數年前有不只一家業主單位，曾因Joint Venture 成員不願蓋章計價，實際已支付款項的廠商領不到錢，並且無法辦理驗收，造成困擾，所以幾年間不再允許廠商共同投標。
The owners feel that the watchful public may not appreciate the cost saving harvested from the liberalization allowing contractors associated with each other as it won’t be shown on the tender opening price record, and instead, they fear doubt will be casted against any relaxation of qualification through joint tendering. There had been episodes justifying the banning of joint tendering as some of the Joint venture members intentionally sluggish the application of certificates halting the contractual process. The annoyed owner shut the door for collaboration for years and still on vigilance.
但不管是那種形式的JV 組織，成員的投資或承攬比率如何，在JV 中，沒有一個成員的權利或地位能高於其他成員。
High above anything, no JV member is said to be superior to the other members disregard the Share of Participation.
(3) The standings of local JV members
工程所在國政府為扶植國內業者，不論是設計或施工，通常會要求國際廠商將部份工作以Consortium或Integrated JV 方式交給業主認為夠資格之本土廠商。但資格與技能、競爭力並不一定等同，尤其在投標前相對為短的時間，國際廠商認為其做評估會有風險，所以就會產生只想付出有限費用，找不實際參與的廠商來合作（sleeping partner）之念頭。以離岸風電設計為例，投標規定國外與本土承攬比率必須在一定數字以上，但查核只在投標時做一次，細節等實做時才見分曉，這樣的執行有可能違背招標原意。
There may be requirement from the host government that the foreign participants of the project have to form JV with local companies, either in Consortium or integrated JV. But as aliens, the international companies feel it too risky within short tender period to decide a known amount can be undertaken by strange companies, so they prefer to go for a sleeping partner just paying puny fees for a legitimate participation. Take offshore wind mill design works as example, the paper will show the Share of Participation adherent to the tender stipulation, and the international contractors will gain the freedom to do what they want in the future for the limited risk. It’s because the checks will only be done once in tender stage, and won’t expose the actual work details carried out in the far future.
When cooperation between foreign and native companies is enforced for design or construction of wind mill works, most of the locals want to be guaranteed for success. The international companies, high fly developers or contractors, for the requirement in schedule and project financing would like to find maximum freedom in their future actions. And it’s possible for local companies to offer minimum fees to woo the foreigners and wait to get the final dividend according to the Share of Participation appeared on the paper. We said about this in section above, stressing the checks by the owner done only once at tender stage when where the actual design cost goes is unknown can be misleading.
在某些情況下，當地廠商範圍甚至可以縮小到同一國家的不同縣市。以台灣來說，在花蓮、金門、馬祖或澎湖，某些廠商具壟斷性施工資源，或社會關係。在台灣本島，或許不明顯。但如日本，全國性的公司到北海道或沖繩，要與當地的廠商合作，並以當地廠商做為JV 的Leader，這就是憑著地域的特殊關係取得的地位。在組織JV 邀請成員時必須注意這一點。
There are companies getting clout by their origin, and the companies from outside not necessarily from foreign have to recognize it. For example, there will be local companies cornered special construction resource, or social relationship, like in Hualien, Kinmen, Matsu or Penghu in Taiwan. It can be more apparent in Japan, larger than Taiwan, the so called big five going to Hokkaido or Okinawa has to ask the locals to Join the team and sometimes even ask them to be the Leader. When people want to organize JV, he has to consider the point.
(4) The Dissenter and Paranoid as the JV Member
It’s not unusual that in a Joint Venture the members could be antagonistic against the Leader and cause troubles from time to time. It happens when a dominant foreign company mislead or irritate the natives for the unnecessary cultural prejudice; or in the other way that the locals are not knowledgeable about international cooperation and the execution of a gigantic project, so in addition to casting doubt about the JV decisions they may protest and act not in congeniality with the team. The problem supposed to be temporary and personal, when the concerned party have common goal to complete the works, patience can work out to solve the problem.
If the bosses or the decision makers believe that the big international company will give way to what they want, they will be more eccentric and paranoid so as to cause big problem for JV. Ironically, when we deem that the JV member’s capital and Share of Interest is bigger, his influence and power may be more convincing, is now totally wrong under the notion “If the contract suffers the big share participant will suffer most”. There will also be dark side of “nationalism” embraced by those paranoids telling them bullying on the foreigners is complete amoral. The short construction history witnessed the bad stories not only locals harassed foreign, and also the small companies torment the bigger ones.
工程承攬有專業與商業兩種成分，但對某些公司而言，追求利潤是一切。在Consortium 的情形，他們從報價開始就有強烈保護自己的想法，認為我的承攬比率低，能否得標和我減價沒有關係。得標後要別人片面讓步，不肯承受任何風險等偏執，常造成JV 的困擾。在Integrated JV，這類型的公司要求Leader 分配利潤，但當JV 遇到任何風險，如果Leader 或PM 有可指謫，他們就忘記JV 的設立目的，是在承擔風險、任何成員都不應為他們派任人員犯錯，背負成本上的責任。問題是他們的抗爭可以無限上綱，自傷傷人，如拒絕簽字請款，或拒絕業主要求每一個成員都要簽署的作業表單。遇到這種情形，考驗Leader 的智慧。
The contracting business has elements in both professionalism and commercial consideration, but for some company, pursuance of profit shall be above everything. In the case of Consortium, the egoistic boss will leave the responsibility for tender price deduction to the companies with bigger Shares of Participation; and during execution, they will ignore the situation that each member has to accommodate for the ambiguity found in interface and shoulder any risk brought by changes. In the case of Integrated Joint Venture, the eccentric will request the Leader to bring profit for the JV or they will pinpoint the Leader and PM for any bad judgement or fault made in carrying out the works. They don’t go back to the point that the purpose of JV is members to share the risk; and the companies assigned the persons to JV positions shall not be responsible for any mistake and losses those people will make. They will select the right moment to deter the JV proceeding for refuse to sign on any format requiring them to endorse. The leader is tested when the member become erratic.
Stages of Joint Venture, from Inception to Works Completion
The first stage of Joint Venture, can be called “Stage of Memorandum”. When a company feel it will be able to tender a project through forming Joint venture with other friendly company for benefits like technology transfer, enhance work experience, improve competency, better financing, make good usage of resource and from legal point of view, etc. He can study for the JV formation, future partners and tendering cost, and accordingly invite the partners for Memorandum of Understanding, however, at stage it’s not binding for tendering.
The second stage of Joint Venture, can be called "Stage of Pre-bid Agreement”. The decision has to be made for JV formation, members to be invited and the work division. The assignment to finish the tender such as project planning, estimation and documentation will be allocated to the team with preciseschedule. The study will also include contract and law, internal procedure, draft of a formal Joint venture agreement.
The third stage of Joint Venture, can be called “Stage of JV proceeding”. After the award there should be formal JV Agreement established. The Supervisory Committee set up accordingly, start to assign persons to senior positions and recruit staffs, manage the asset, capital and financing, procurement and subcontracting, complete the works.
「共同或聯合承攬」的最後階段，是「JV 結束」階段。一般來說，當工作完成，盈虧大致決定後，這時要做的工作很容易被忽視：成本清算、財產處理（資金、材料、機具、智慧財產）、人事（歸建與資遣），及JV 的正式解散。
The final stage of Joint Venture, can be called “Stage of JV Wind up”. After work completed, profit or loss determined, the remaining works for wind up can be overlooked: there should be liquidation, asset handling (working capital, material, equipment, intangible property), personnel issues (return to the original companies and lay off), and formal closure of JV.
熟悉工程公司總體經營管理的人可以了解「共同或聯合承攬」是很單純、普遍的商業行為。要談妥它的組織、運作以及成員互動的原則，又要在很短的時間內完，這就需要將來的夥伴與自己公司要互通信息，坦誠以告。所以出去談JV 的人要有些視域、高度與智慧。談JV 的人，在中、小型公司就是老闆或有決定權的人，這是正常的。「共同或聯合承攬」協定，沒有標準形式或條款，所有的一切都是談出來的；當然，與其他人合作，或自己單獨承攬工程的經驗，都應該做為參考。
People familiar with the governance of construction company or engineering firm understand JV operation is simple and common in the commercial world; and the confusion, if any, may come from that the people sent for negotiation with potential collaborators don't present the company well within short time frame and collect information reciprocally from the counterpart. Therefore, people sent to conclude agreement with potential members must be the guy with vision, position, and intelligence; not bad in Taiwan that the bosses or people have the same power will participate the discussion. No standard clauses or form of agreement can be followed as each work and cooperation shall be unique.
JV 的組織、權力制衡與行政流程，幾十年來，並沒有什麼更易，因為人性未變。然在管理方面，因各種軟、硬體以及通訊技術的精進，JV 運作的效率提高，成員要取得工程執行各種數據，並給以回饋，更為方便。國家與公司或有界限，但不應再是問題。
For many years, it doesn’t change for the part of JV formation, balance of power, and internal process, because the ultimate requirement is to exercise control for the company participated in the organization; the human nature behind it is not different. However, there’re various soft and hard ware for administration and the skill and speed form communication are much improved. That a Board member now can obtain more in-depth information and ask many questions based on the data extracted; the border and the company line shall not be the problem.
The government has firm policy to solicit the successful technology transfer from international companies to Taiwanese firms in public works with high technical content to push the construction, lower the cost and groom the industry. JV between the foreign and the local will be the most effective and convenient mean to realize the policy for all its importance.
國際廠商在尋找合作對象方面有時間的壓力，工程業界必須主動，提供客觀資料，並防制短視近利的廠商，以變相的低額佣金來扭曲招標機制希望達成的目標。當然我們相信廠商本身的自律最為重要，但科技進步，資料與數據的保存不是問題，經過還原，一個JV 的運作是否符合訂約本意，其實無所遁形。所以只要政府的關心，能延長至契約工作完成階段，並保留審議判斷的權力，能達成技術轉移的JV 一定可以組織成功，不論施工或設計。
We understand the international company will have time pressure to seek the partners within tender period, and there is possibility that a short-sighted company will offer the lowest possible price for commission to elicit the foreigner for their freedom of actions. Under the circumstance, the company determined to reach to the modern technology shall be active to illustrate his ability to work in all rigorous conditions. We trust it’s critical that the companies in the industry must be disciplined so as not to spoil the government policy, however, checks is important and the modern JV organization will be able to provide so much in-depth information and data as described above. The Owner shall be in good position to judge whether or not the technology transfer as mandated in Joint Tendering Agreement is followed as the truth can be revealed to show the real situation. So, it means if in the tender the owners reserve their right to supervise the implementation of contract or agreement until the work is finished, the JV operation can be organized to receive the technology transfer; for construction or engineering.