How to Create a Joint Venture for Tenders: A Step-by-Step Guide

Competing for large government tenders often requires resources, experience, or capital that a single small business may not possess. A Joint Venture (JV) allows two or more companies to pool their strengths and bid for contracts they couldn't win alone. This guide explains exactly how to structure, register, and manage a successful tender JV.

What is a Tender Joint Venture?

A Joint Venture is a temporary business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task—in this case, executing a tender contract. Unlike a merger, the companies remain independent entities.

Why Form a JV?

• Combine complementary skills (e.g., construction + engineering)
• Improve BBBEE score (by partnering with a higher-level entity)
• Increase capacity (financial, equipment, staff)
• Meet specific tender requirements (e.g., 30% subcontracting to EMEs)
• Share risk and liability

Types of Joint Ventures

There are two main ways to structure a JV for tenders:

1. Unincorporated Joint Venture (Contractual JV)

This is the most common form for tenders. No new company is registered. The relationship is governed entirely by a contract (JV Agreement).

• Pros: Faster to set up, lower administrative burden, flexible.
• Cons: Liability can be complex; requires a dedicated JV bank account.

2. Incorporated Joint Venture (New Company)

Partners register a new private company (Pty Ltd) specifically for the project.

• Pros: Clear liability protection, distinct legal entity.
• Cons: Takes time to register (CIPC, SARS, CSD), more administrative upkeep.

Step-by-Step Guide to Forming a JV

Step 1: Choose the Right Partner

Due diligence is critical. Verify your potential partner's:

• Financial stability (request bank ratings)
• Technical track record and references
• Tax and CSD compliance status
• Cultural fit and work ethic

Step 2: Draft a Joint Venture Agreement

This is the most important document. It must be submitted with your tender bid. A solid JV agreement should cover:

• <strong>Scope:</strong> Specific tender number and description.
• <strong>Roles & Responsibilities:</strong> Who does what exactly?
• <strong>Profit Sharing:</strong> Percentage split (e.g., 70/30) based on contribution.
• <strong>Management Committee:</strong> Who makes decisions?
• <strong>Bank Account:</strong> Signatory powers and financial controls.
• <strong>Dispute Resolution:</strong> Mediation and arbitration clauses.
• <strong>Liability:</strong> Usually 'joint and several' liability for the project.

Step 3: Obtain a Consolidated BBBEE Certificate

You cannot simply submit two separate BBBEE certificates. You must obtain a consolidated certificate for the JV from a SANAS-accredited agency.

Step 4: Open a Joint Bank Account

Open a dedicated bank account in the name of the Joint Venture. This ensures transparency and that project funds are ring-fenced.

Step 5: Register the JV on CSD (Optional but Recommended)

While individual partners must be on CSD, registering the JV profile links the partners and the specific bank account, simplifying payment from the government.

Risk Mitigation Strategies

JVs can go wrong. Protect yourself with these strategies:

• <strong>Clear Exit Clauses:</strong> Define what happens if one partner fails to perform.
• <strong>Financial Controls:</strong> Require dual signatures for all payments.
• <strong>Regular Meetings:</strong> Schedule weekly management meetings with minutes.
• <strong>Subcontracting Limits:</strong> Restrict partners from subcontracting their work without approval.

Frequently Asked Questions

Do I need a lawyer to draft the JV agreement?

It is highly recommended. While templates exist, a lawyer ensures your specific interests and risks are covered. A poorly drafted agreement can lead to costly disputes.

Can a JV have more than two partners?

Yes, a JV can consist of multiple partners (Consortium). However, complexity increases with each additional partner. Keep it as simple as possible.

What happens to the JV after the contract ends?

The JV agreement should specify a termination date or event (e.g., final payment received and retention period expired). Once all obligations are met and profits distributed, the JV is dissolved.

How are taxes handled in a JV?

In an unincorporated JV, each partner is responsible for their own tax on their share of the profits. The JV itself is not a separate taxpayer, but it may need to register for VAT if the combined turnover exceeds the threshold.

Does the JV need a separate CIDB grading?

For construction tenders, the CIDB has a specific calculator to determine the combined grading of a JV. Two Grade 4 companies might qualify to bid for a Grade 5 project together.

Conclusion

Joint Ventures are a powerful tool for growth, allowing small businesses to punch above their weight. However, they require trust, clear legal agreements, and rigorous management. By following the steps outlined in this guide—choosing the right partner, drafting a watertight agreement, and ensuring compliance—you can leverage JVs to win bigger, more profitable government tenders.