A question for you: Whatever happened to minority joint venturing?
By Guest Columnist JOE HUDSON, trailblazing Black business advocate, mentor and coach
When the Honorable Maynard Jackson installed the City of Atlanta Equal Economic Opportunity Program, one of its main highlights was “Joint Venturing,” where minority businesses were coupled with larger white firms to bid on and execute Atlanta contracts.
The idea of joint venturing was to create a “teaming arrangement,” which enabled a minority firm to utilize the coupling with a majority white firm as a methodology to gain expertise, develop relationships and share in the profits. This opportunity, when combined with minority subcontracting, gave strength and uniqueness to the mayor’s effort. This program created many opportunities for minority businesses to explore different aspects of business development. With such arrangements, the city helped to bring a project into reality and assist with business development. It gave minority firms a pathway to more significant business opportunities brought about by the experience.
The joint venture agreement would also describe any business development activities between the partners to grow the minority firm. Joint venture agreements were used as a working tool for compliance and bid evaluation. Joint venturing was also adopted by almost every public agency within the city and many private ones. Thus, Atlanta as a city set the standard for minority participation in contracting. In evidence of its support, the whole city utilized the two methods as primary tools for engaging the minority business community with the majority business community. It used to be said, “If you wish to do business in Atlanta, you must Joint Venture.”
As a participant in three joint ventures, one with the city and with two other agencies, I can attest that it allowed me to make some decisions about the business I wanted to establish for my long-range future. Within a joint venture, you are required to have a combined plan that articulates the project goals and outcomes along with how risks are shared, profits divided, liabilities handled, and, most notably, how you would work together in a mentoring/business relationship.
Additionally, the minority firm agrees on how the funds are to be received, handled, banked, and disbursed to meet obligations. The contractual conditions must be spelled out in a joint venture agreement before bid submission and submitted as evidence with the bid response. The joint venture agreement, a legal document, is also an expensive undertaking. These facts are a real challenge to most white firms who are used to calling the shots themselves, let alone sharing, any responsibility with a less experienced industry minority partner.
With subcontracting, the prime bidder, simply put, must show evidence of due diligence to locate and utilize minority businesses. They must describe the portion of the contract to be farmed out and show other evidence of involvement and support. The prime must submit this evidence with their bid. The minority firm has no obligation as a manager or owner other than to be the best subcontractor as possible and ensure any work they do is done on time and within budget.
However, over the ensuing years, joint venturing as an effective business development tool has lost its way. Today there are fewer contracting opportunities with joint venturing as a compliance opportunity and business development tool. The project ceiling has been raised and may only be included in large municipal project bids. In fact, with some contracts today, the minority firm can no longer be inexperienced. The minority firm must now show it has the experience, means, and resources (“Ready, Willing, and Able”) to perform its share of the venture, a far cry from the Maynard Jackson days. Today the joint venture is no longer a business development tool. It is merely a commitment.
What happened? Maybe it is all about the potential structure of a contracting agreement and the final financial outcome of a project. As I see it, it’s about control and money. The fundamental difference between joint venturing and subcontracting is that a joint venture manages the contract. In contrast, with subcontracting, the subcontractors merely executes their portion as assigned and maintains their own risk. As the project joint venture lead, it means you receive a proportionate share of the agreed upon profits, and the fees you may charge for providing some executive functions. With a minority as a joint venture partner, you would share the profit, risks, and usually some portion of the management or operations. In other words, you would share the final earnings as determined by the joint venture agreement.
Usually, the minority partner and the majority partner perform some of the work, which is the same in either a joint venture or subcontract. To most majority contractors, this sharing of the profit is the real issue. This was the problem that the Jackson approach was attempting to answer by coupling the inexperienced with the experienced. It enabled a minority firm to share in profits etc., without a full-financial investment in the deal. I remember Mr. Herman Russell, a master of joint ventures, once told me, “Joe, you have got to put something in the deal to get something out.” In other words, the minority partner must input their share of the projected startup costs into the project at a minimum.
This input enables them to receive a fair share percentage of the final profits and to be paid twice, once as a joint venture partner and once as a subcontractor. Additionally, the minority business role in the joint venture usually takes that of a project manager or managing partner, thus a voice at the table in the management. The input of a portion of the costs is not required when performing only as a subcontractor, nor is a voice in management given.
Given this opportunity option, one can readily see how joint venturing with its extra bite of the apple would offer even greater opportunities to create competitors, reduce individual profits, or help develop the minority firm, while bringing additional resources in any form to their communities. Therefore, today, it appears we have side-stepped joint venturing for straight sub-contracting. With subcontracting, most business is the white contract winner and management without any input from minority subcontractors who must execute as required. Thus, the white majority firm does not have to give up any market position or even help create a future competitive firm. But remember, the original objective was to help generate minority firms capable of becoming prime contractors, not always remaining sub-contractors.
I am not saying that today there are no minority prime contractors or joint venture partners within today’s various business opportunities. But even the City of Atlanta has reduced its emphasis. Still, by reducing the chances for joint venturing and not making it an easy contracting option, the potential to establish even larger minority firms and help achieve even greater citywide business and community economic goals has gotten lost with this omissive action when it could have genuinely continued to be the hallmark of the program design.
With subcontracting as the prime driver of public contracting, most other public concerns have again adopted the same practices, almost recreating the environment Maynard fought to dispel. While times have changed and subcontracting is the acceptable norm, the potential provided by “Joint Venturing” has been diminished, with most white contractors clearly in control. If it is still an ongoing practice, it certainly has gone to ground.
Note to readers: Joseph R.” Uncle ‘Joe” Hudson has provided leadership as founder of Hudson Strategic Group; chair of the economic development community of the NAACP’s Atlanta branch; past president of Atlanta Business League; past chair of the Atlanta Downtown Development Authority, and co-founder and past president of the Georgia Minority Supplier Development Council.