Unique ways to split profits and losses in a construction Joint Venture – Part 2
Welcome to the second part of our three-part series on ways to split profits in a construction joint venture. In the first part of the series, we covered 10 different methods ranging from simple approaches like an equal split or a fixed percentage split, to more complex systems like a profit-and-loss split or a hybrid approach that combines multiple methods.
In this second part, we’ll explore 10 more ways to split profits in a construction joint venture. Whether you’re just starting to think about a joint venture or trying to negotiate a profit split with an existing partner, this series will provide you with a wide range of options. So let’s dive in and look at 10 more ways to split profits in a construction joint venture.
11. Based on a fixed fee plus profit share: In this scenario, each partner receives a fixed fee for their work on the project, as well as a share of the profits based on a predetermined formula.
12. Based on cost plus fee: With this method, each partner is reimbursed for their costs and overhead, plus a fee for their work on the project. The profits are then divided based on a predetermined formula.
13. Based on target profit: Where beneficial, the joint venture partners agree on a target profit for the project. The profits are then divided based on a predetermined formula once that target has been reached.
14. Based on net profit: In this system, the profits are divided based on the net profit of the joint venture after paying all costs and expenses. This approach is often used when the partners have contributed equally to the project.
15. Based on fixed price: In this scenario, the joint venture partners agree on a fixed price for the project, and the profits are divided based on a predetermined formula once that price has been reached.
16. Based on fixed price plus profit share: For this schema, the joint venture partners agree on a fixed price for the project, and each partner receives a share of the profits based on a predetermined formula once that price has been reached.
17. Based on time and materials: Sometimes, the joint venture partners decide to be paid based on the time and materials each has invested in the project. The profits are then divided based on a predetermined formula.
18. Based on performance bonuses: In this scenario, the joint venture partners receive a fixed fee and may also be eligible for performance bonuses if they exceed specific targets or benchmarks. The profits are then divided based on a predetermined formula, including any performance bonuses earned.
19. Based on equity: In this method, the joint venture partners receive a share of the equity in the project rather than a share of the profits. This approach is often used when the partners are investing in the project for the long term and want to share in the appreciation of the asset.
20. Ability to provide bonding capacity: For this schema, the joint venture partners agree to divide the profits based on the ability of each partner to provide bonding capacity for the project. For example, if one partner has a strong track record and can secure bonding at a lower cost, they may receive a larger share of the profits.
We hope that this second part of our three-part series on ways to split profits in a construction joint venture has given you some more ideas to consider as you think about how to divide profits in your JV. Be sure to tune in for the final part of the series, where we’ll explore 10 more ways to split profits in a construction joint venture. Thanks for reading, and we’ll see you for Part 3!