Trust is a must for success

As construction projects have increased in both size and ambition, companies now find they need to join forces to take them on. And, as Dr Sheriff Hashem, PMP, WSP Middle East, explains, joint ventures bring their own set of challenges.

COMMENT, Business

The last decade has seen a massive increase in the size and complexity of the construction projects tendered across the Middle East in general and particularly in the GCC construction marketplace. The term 'mega-project', which used to be quiet impressive in the 1980s and 90s, has been gradually replaced by the emerging awe-inspiring term 'multi-mega-project'.

This rapid increase - in the marketplace scale and in the developers' size, needs and expectations - has been much faster than the rate of growth of most local and international construction companies operating in the region.

In response, many engineering and construction companies from all over the world have been rushing into the region and entering into giant International Joint Ventures (IJVs), with the aim of using the IJV collective strength to handle such giant projects and share the associated profits and risks.

Given the fact that such 'newly' allied IJV partners are essentially different companies, with different business ambitions, organisational and sociopolitical cultures, and mostly come from different jurisdictions, the need for a high degree of trust among the partners becomes a crucial prerequisite to ensure the IJV's success and reducing its recently reported high rate of failure.

Choosing the right IJV partner

The success of any IJV starts with the selection of trustworthy joint venture partners.

According to many sociologists, you can only put your trust in people who share the same goals and values. From a business perspective, trust means a combination of fairness, reputation and competence.

The right joint venture partners should therefore share goals, principles and values, and should all bring to the table a real contribution and added value expressed in business terms, i.e., capital (resources or monetary), management expertise, customer base, special technology, market share, key individuals and a superior financial status and business reputation.

First trust signals

The need to exercise trust and exchange trust signals in the joint venture relationship starts during the early joint venture negotiations.

The first real test of trust comes with the issuance of the initial 'non-binding' joint venture 'letter of intent'. This letter sets out a general outline of the joint venture goals, objectives and other business items that are to be later put into the ultimate IJV agreement.

Although the initial IJV 'letter of intent' is termed 'non-binding', it usually contains two items that are binding and mainly rely on trust: exclusivity and confidentiality.

Failure of any of the parties to fulfill its commitments can easily bring the partnership to an early end. On the other hand, if commitments are honoured, trust among partners will be enhanced, raising the probability of the success of the next negotiation step involving finalising an IJV agreement.

IJV success

Once the IJV agreement is signed and the multi-mega project implementation is underway, the amount of required energy to handle the giant task involving tens of thousands of activities is simply enormous.

Although the IJV agreement's legal, accounting and other contractual aspects associated with forming the joint venture are critical to organising relationships and defining duties and responsibilities of the partners, trust remains indispensable.

Experience has shown that formal control mechanisms stated in the IJV agreement can only produce better performance in the joint venture's early stages, and that their efficiency of such control mechanisms declines with time as trust develops from minor to major transactions requiring a high level of trust. Therefore, once the joint venture agreement is signed, partners should immediately get involved in a structured, conscious and continuous trust promotion and preservation effort.

Trust-keeping mechanism

The most important ground rule in the jointure venture business is to maintain an environment of transparency and trust.

At an operational level, trust helps to lessen IJV internal coordination and control efforts, and thus reduces task complexity and saves IJV energy otherwise required for controls. At a contractual level, trust acts as a primary dispute prevention and resolution mechanism, especially when it comes to the IJV classical areas of conflict, such as miscommunication, misunderstanding or lack of familiarity with the host country jurisdiction.

One of the recommended mechanisms to promote trust and save an IJV from a drastic failure is to form a joint venture 'trust committee' consisting of a member representing each partner, plus an independent third party chairman. The trust committee chairman should have a reasonable amount of knowledge of the partners' home cultures, languages and jurisdictions, and shall act fairly and impartially. The trust committee shall monitor the status of trust within the joint venture, receive trust related complaints and make trust enhancing mediations, judgments and recommendations.

Finally, the importance of trust as a crucial prerequisite to a successful alliance has been recognized by businessmen all over the world. This fact is still valid, it just need be remembered and built upon. Many of today's organisations adopt trust as a fundamental business principle.

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