Business Excellence-Enhancing Project Returns : Financial and

Project Management Strategies

By Dr Punit Sethi, PhD

Excellence in Strategies/PM(continuous stream of successfully managed)

Time

Cost/ROI

Performance

Customer Relation

Internal Internal Metrics

Culture

Work Flow

5Ms

MenMaterialMachineMoneyMinutes

Value Engineering

Reduce Cost Improving Function (improving

functionalities & performance)

Joint Ventures as Financial & PM Strategies

Joint ventures (JV)

to carry out a specific project or simply to assist with the growth and continuation of a business.

For success and enlarging Business.To meet Technical and Financial

Qualification.

JV

Business Agreement for finite time, a new entity & new asset-contributing equity.

Good JV- Comprehensive Map of duties & obligations; minimizes complications.

Joint ventures (JV) are set up for many reasons: to carry out a specific project or simply to assist with the growth and continuation of a business.

Parties to JV.

•Individuals

•Partnerships

•Companies

•Other Organizations or Associations

•Incorporation of Companies

Consideration for JV

•What is being achieved

•Exclusive Negotiation

•Confidentiality (Undertaking) ?

•Limitations of Territory

•What consents, approvals, licenses and permits are necessary for JV to operate?

•If cross border who’s jurisdiction?

•Laws of foreign ownership and investment.

•Exchange controls, Relevant Taxes and Duties

Funding

•Own Resources

•External Resources

•Parties payment in cash or payment in kind such as expertise and resources

•Must agree to percentage (%) of benefit for JV.

•Working Capital requirement.

•Any losses.

•Expansion Costs.

Miscellaneous Aspects of JVs

•If JV through a Company, then parties must agree to extent to which participation in JV is transferable (In case anyone wants to come out)

•Any prohibition (in areas, territory)

•Deadlock provisions are essential in a joint-venture agreement. This is when the parties cannot agree on certain voting issues and a decision cannot be taken. The joint-venture agreement must deal with this and set up a procedure to be followed in the event of a deadlock. For example, a voting deadlock at board level can be solved by giving a casting vote to the chairman or by involving an independent expert or arbitrator.

Miscellaneous Aspects of JVs

•The agreement must also establish the duration of the joint venture

•How JV can be terminated. In the event of termination, the agreement must deal with the distribution of assets, the discharge of any outstanding contracts, and the liabilities of the joint venture

Advantages : JV

•For new products and latest technology entering into market, R & D of others

•joint venture allows two competitors to join forces, increase their market exposure, and compete at a higher level against other, more powerful companies in the same industry.

•It also allows two connected businesses to cooperate on a joint project in a certain market.

Advantages : JV

•In India, going for JV has become essential for most of the Indian Companies as per Government norms/rule position even for Pre-Qualification for qualifying to go to next stage of bidding. Desires technical experience forces Indian Companies to go for JV e.g Technical Capacity for purpose of evaluation (Project experience /Construction Experience on Eligible Projects in Highways Sector (Highways, Expressways, Bridges, Tunnels and Airfields) or Core Sector (Power, Telecom, Ports, Airports, Railways, Metro Rail, Industrial Parks/estates, logistics parks, pipelines, irrigation, water supply, sewerage and real estate development).

Disadvantages : JV

•Negotiating a joint venture can be complex and time consuming. It involves thorough research of the market and territory in which the products will be sold or the project will be organized.

•Joint ventures can be expensive to set up initially.

Action Checklist

•Study any joint venture you might set up carefully.

•Obtain as much information from as many sources as you can before committing to an expensive joint-venture agreement.

•Plan it carefully and set up a realistic business plan with your business partner.

•Know your market and make sure that you have analyzed the consequences for your own business of entering into a joint-venture agreement.

•Economize by negotiating a reasonable rate with your legal advisers, but remember that it is better to incur costs by obtaining legal advice than to enter into a joint venture under terms that you do not understand.

Dos and Don’ts

Do

Choose your partner in the joint venture carefully, as you will be legally bound for a set period of time, under obligations that will prove costly if they are not successfully performed.

* Involve your solicitors in the evaluation of both the risks and potential benefits of entering into a joint venture.

* Negotiate your rates and make a contingency plan for any cost over-run. Plan carefully how the joint-venture will operate, how the profits will be distributed and who will take responsibility for what.

Dos and Don’ts

Do

* Remember to have appropriate stake in JV to get your experience considered on your own for next Project. (like NHAI says minimum equity of 26% for any earlier projects to be in eligible category to claim experience).

Don’t

•Don’t make the mistake of being attracted by the idea of a joint venture that has not been thoroughly planned and thought through.

* Don’t overlook the importance of setting up a contingency plan in case the joint venture will not work and the relationship breaks down.

FIDIC for Financial & PM Strategies

Knowledge of FIDIC

(e.g especially International Bidding; Model Concessionaire Agreement)

•Knowledge of FIDIC. The acronym FIDIC stands for Fédération Internationale Des Ingénieurs-Conseils, French for the International Federation of Consulting Engineers.

•The founding member countries of the FIDIC were Belgium, France and Switzerland Located at the World Trade Center in Geneva, Switzerland, FIDIC aims to represent globally the consulting engineering industry by promoting the business interests of firms supplying technology-based intellectual services for the built and natural environment. FIDIC is well known in the consulting engineering industry for its work in defining Conditions of Contract for the Construction Industry worldwide; code of ethics-fair, unbiased, impartial.

FIDIC

* Companies and organizations belonging to FIDIC national member associations are encouraged to announce themselves as FIDIC members and use the FIDIC logo. The use of the logo is strictly controlled, and all FIDIC products and services are protected by the FIDIC trademark.

The backbone of the body of FIDIC's publications is FIDIC's selection of contracts and agreements.

FIDIC publishes conditions of contract for:

EPC/Turnkey Projects

Plant and Design Build Contract (updates Yellow Book and Orange Book)

The Short Form

Construction Contract (updates the Red Book)

Works of Civil Engineering Construction (The Red Book)

Electrical & Mechanical Works (The Yellow Book)

Design-Build and Turnkey (The Orange Book)

In 1999, a suite of three new conditions of contract was published by FIDIC, following the basic structure and wording harmonised and updated around the previous FIDIC Design-Build and Turnkey Contract (the 1992 ‘‘Orange Book’’).

These conditions, known as the ‘‘FIDIC rainbow, were the Conditions of Con- tract for:

l Construction, the so-called Red Book, for works designed by the Employer lPlant and Design-Build, the so-called Yellow Book, for works designed by the

Contractor l EPC/Turnkey Projects, the so-called Silver Book, for works designed by the

Contractor

An English native speaker will naturally not encounter many difficulties when reading the FIDIC forms, although of course the wording used will sometimes be subject to interpretation. Again an English native speaker will usually be familiar with the underlying legal principles, which mostly derive from Common Law (ENGLISH), despite the fact that some Civil Law (ROMAN)-inspired features have been incorporated in the FIDIC books. Thus there is a clear need to explain Common Law concepts and legal terms in the context of Civil Law. This may often prove to be difficult as the very nature of Civil Law language is in many respects different from Common Law language. Both systems have terms which are often difficult to translate literally because of the fact that the terms reflect legal concepts which are unknown in the other legal world.

..