Key issues for a haulage company to bear in mind when setting up a JV agreement with another haulier?
Joint ventures are becoming increasingly common in the haulage industry with recent examples including Stobart and AW Jenkinson working together in relation to their biomass transport work, and Fagan and Whalley and Edwin C Farrall coming together on their Knauf contract.
Benefits of joint ventures
As the current economic climate continues to present its challenges, hauliers will be looking for new ways to maximise the opportunities available to them. Many benefits can arise where two or more hauliers collaborate for strategic reasons and contribute their different strengths to any venture (for example, staff and resources, finance, technical know-how, distribution channels, marketing).
When successful, joint ventures can allow the parties to take advantage of new opportunities much more quickly than they otherwise would have working alone, or that would have otherwise been out of reach. Collaboration can lead to increased growth, productivity and ultimately profitability and the success of the business.
Risks associated with joint ventures
There are of course risks associated with participating in a joint venture and the success of a joint venture can often hinge on how thorough the groundwork is in terms of due diligence and setting clear objectives and goals from the outset.
Hauliers considering entering into a joint venture should endeavour to agree the commercial terms with the other participants (including what happens if things do not work out) before signing on the dotted line. Some detailed consideration at the outset can prevent difficulties later.
Here are the most important things to get right.
The joint venture will need to slot into the overarching business and strategy of the parties and it is imperative that those involved are clear what each party is bringing to the table and what they want to get out of it. Choosing a suitable joint venture partner is key.
If the joint venture partners cannot work together, one is not as committed to the venture as others, or the reputation or values of the partners do not align, making the venture a success could be difficult. Operators will always be keen to protect their most valuable asset, their operator’s licence and therefore, ensuring that the potential partner places the same importance on compliance is paramount, as nobody wants to be linked with an errant operator.
Decide on your structure
One it has been decided to pursue a joint venture, the first matter to settle on is the structure of the joint venture. Will a new legal entity be set up as the special purpose vehicle (usually a limited liability company which is a tried and tested option)? Alternatively, will the venture be governed by a contract dealing with specific matters say, the acquisition of products together with another haulier (such as Stobart and AW Jenkinson’s joint-procurement agreement for Scania trucks)? There are also other options such as forming a partnership or a limited liability partnership.
The appropriate structure will depend on the nature of the venture and the risk profile the parties wish to accept.
Legal and tax advice will assist parties to choose the appropriate structure. In any case, a legal agreement will be needed to establish and govern the joint venture.
Joint ventures are unlikely to last forever. Some are project specific and so conclude when the project concludes – others may just run their course.
Contractual documents cannot cover all eventualities but having watertight provisions in your contractual documents covering main issues that arise at the end of a joint venture can make unwinding a joint venture more straightforward. Whether that is providing that the parties can serve notice on each other to terminate or the contract provides mechanisms by which one party buys the other out, having an agreed process from the outset can make it much less painful later, (especially if the joint venture is not working out as expected).
Termination provisions should also cover how property and assets (including intellectual property) in the joint venture are divided up when it ends and who is responsible for settling any ongoing liabilities of the joint venture.
Take legal advice covering operator specific matters such as, any changes to, or new operator licences that may be requried. This should be covered well in advance of the joint venture commencing so that licensing requirements can be run alongside setting up the joint venture seamlessly.
Ensure you have a contract to regulate your joint venture which should include:
- Objectives and scope of the joint venture
- Management arrangements and decision making
- Provision of information and communication between the parties
- Financing of the joint venture (initial and future)
- How will revenues and profits be divided between the parties?
- Who is responsible for losses and liabilities?
- Effect on other business interests (will there be restrictions on other business activities that can be carried on by the parties?)
- Dispute resolutions procedures
Depending on the structure there may be several other legal documents required and legal advisers will be able to help you determine what is needed. Examples are:
- contracts for purchase of business and assets – transferring assets into the joint venture by the parties
- contracts for the supply of goods or services – if any of the parties are to provide support to the joint venture through the provision of goods or services then this should be documented
- distribution and marketing agreements – setting out the terms on which one or more parties to the joint venture provide distribution or marketing for the joint venture
- employment contracts or secondment agreements – employees from each party may be needed to be redeployed to the joint venture, or new staff may be required
- property consents or agreements – to allow the joint venture to occupy new premises or the premises of one of the parties.
- guarantees – if lenders require the individual joint venture partners to support the financial obligations of the joint venture