Joint Ventures Practical Applications

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Joint VenturesPractical Applications

• ACC, Inc. June 1, 2008

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JV Guidance Attachments

• Attachment I Flowchart of the process
• Attachment 2 JV Information Form
• Attachment 3 - Examples

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The Review Process

• The guidance contains a flowchart that provides a
  very basic step-by-step process for reviewing
  Joint Ventures to determine if, and how much,
  ACDBE participation should be counted towards
  goals

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JV Information Form

• One of the tools to help get through the process
  is the JV Information Form
• Suggested that the JV partners applying for ACDBE
  credit complete the form to simplify the review
  process

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ACDBE Joint Venture Information(to be submitted
with joint venture agreement for review)

• 1. Name of Joint Venture      
• 2. Name, address and phone number of joint
  venture contact person      
• 3. Firms participating in joint venture (use
  additional pages if necessary)
• Name of firm
• Address
• Phone Number
• Contact name/phone number
• ownership
• ACDBE yes no Certifying agency
• Date of Certification
• Type of work for which certification was granted
       

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• 4. ACDBE initial capital contribution     
• 5. Future capital contributions (explain
  requirements)      
• 6. Source of funds for the ACDBE capital
  contribution      
• 7. Describe the portion of the work or elements
  of the business controlled by the ACDBE      
• 8. Describe the portion of the work or elements
  of the business controlled by the non-ACDBE
       

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• 9. Describe the ACDBEs involvement in the
  overall management of the joint venture (e.g.
  participation on a management committee or
  managing board, voting rights, etc.)
• 10. Describe the ACDBEs share in the profits of
  the joint venture      
• 11. Describe the ACDBEs share in the risks of
  the joint venture      

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• 12. Describe the roles and responsibilities of
  each joint venture participant with respect to
  managing the joint venture (use additional sheets
  if necessary)
• ACDBE joint venture participant      
• Non- ACDBE joint venture participant      
• 13. Describe the roles and responsibilities of
  each joint venture participant with respect to
  operation of the joint venture (use additional
  sheets if necessary)
• ACDBE joint venture participant      
• Non- ACDBE joint venture participant      

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• 14. Which firm will be responsible for
  accounting functions relative to the joint
  ventures business?      
• 15. Explain what authority each party will have
  to commit or obligate the other to insurance and
  bonding companies, financing institutions,
  suppliers, subcontractors, and/or other parties?
       

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• 16. Please provide information relating to the
  approximate number of management, administrative,
  support and non-management employees that will be
  required to operate the business and indicate
  whether they will be employees of the ACDBE,
  non-ACDBE or joint venture.
• Non-ACDBE ACDBE JV
• Management _____ _____ _____
• Administrative _____ _____ _____
•      Support       _____ _____
  _____  
• Hourly Employees _____ _____
  _____                 

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• 17. Please provide the name of the person who
  will be responsible for hiring employees for the
  joint venture. Who will they be employed by?
•      
• 18. Are any of the proposed joint venture
  employees currently employees of any of the joint
  venture partners? yes no
• If yes, please list the number and positions and
  indicate which firm currently employs the
  individual(s).      

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• 19. Attach a copy of the proposed joint venture
  agreement, promissory note or loan agreement (if
  applicable), and any and all written agreements
  between the joint venture partners.
• 20. List all other business relationships between
  the joint venture participants, including other
  joint venture agreements in which the parties are
  jointly involved.

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Examples

• The most difficult component of a JV to assess is
  the role assigned to each of the partners and how
  that correlates to ACDBE participation credit
• The following are examples from Attachment 3 of
  the Guidance as well as some real-life examples
  of roles assigned to ACDBE JV partners

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Example 1- Retail JV (ACDBE 20)

• ACDBE assists with and participates in
  various functions (e.g. budgeting, evaluating
  operations performance, monitoring customer
  service, etc.)
• Assigned role is finding DBE vendors and
  recruiting minority employees for the business

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• Where does the role fit into the chart?
• How important is it?
• What if the ACDBE performed all of the operations
  roles?

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Example 2 Gift/News JV (ACDBE 15)

• Supervise the Manager in developing the annual
  budget of the Joint Venture
• Evaluate day-to-day operations and make
  recommendations to improve efficiencies
• Sourcing and recruitment of personnel
• Supervise employee training and development
• Develop marketing and promotional concepts
• Assist and advise regarding the needs of the
  local community
• Identify potential DBE vendors
• Monitor store compliance with other income
  programs

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Supervise the Manager in developing the annual
budget of the Joint Venture

• Who does the Manager report to for other
  functions?
• What control does the ACDBE have over the budget?
• While budgeting is important, it is only an
  annual budget and the description does not really
  indicate a very active role. How much time will
  be spent on this?
• Exactly what will the ACDBE do?

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Evaluate day-to-day operations and make
recommendations to improve efficiencies

• What happens to the evaluations and
  recommendations once they are made?
• How often does this occur?
• Who actually does it?
• Does it happen on-site?

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Sourcing and recruitment of personnel

• What exactly does this activity entail?
• Is the ACDBE actually responsible for hiring all
  personnel?
• How often does this occur and what is the level
  of effort expended to accomplish this?
• Does on-site staff participate? If so, to what
  extent and who supervises them?

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Supervise employee training and development

• Who will the ACDBE supervise?
• What level of effort is required for this
  activity?
• How much time is involved?
• Describe the nature of the training and
  development to be supervised.

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Develop marketing and promotional concepts

• Is the ACDBE solely responsible for marketing?
• What level of effort is required?
• How much time is involved?
• What is the budget for this?
• Are employees involved? If so, to whom do they
  report?

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Assist and advise regarding theneeds of the
local community

• What is meant by the needs of the local
  community?
• Describe what the needs of the community might
  be.

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Identify potential DBE vendors

• What happens after the vendors are identified?
• Who has control over determining if they are
  used?
• Who negotiates with them and determines if goods
  or services will be purchased?
• What does this represent in dollars compared to
  the total purchases made?

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Monitor store compliancewith other income
programs

• Who determines what compliance is necessary?
• What happens in the event of non-compliance?
• How often is this monitoring done?
• How long does it take?
• How is it accomplished in other operations?
• How important is this in the scope of the
  operation?

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Example 3 Food/Beverage JV(ACDBE 35)

• ACDBE will have primary responsibility for the
  operation of locations in Terminals 1, 2 and 3
• ACDBE will employ staff to manage and operate
  said locations in accordance with the lease
  agreement and direction provided by the
  Management Committee
• ACDBE will attend and participate in weekly
  managers meetings
• ACDBE company will attend and participate in
  monthly meetings of the Management Committee
• Note ACDBE capital contribution will be 85
  financed by Non-ACDBE

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Requests for information from JV Partners

• A copy of the proposed loan agreement in order to
  ensure that the loan provides information
  detailed in Section 3.3 of the joint venture
  guidance
• A clear explanation of what primary
  responsibility actually means
• An estimate of gross receipts to be earned by the
  ACDBE operated locations compared to total gross
  receipts

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Exercises

• The following exercises are excerpts taken from
  various Joint Ventures currently in place at US
  Airports.
• The agreements were obtained through a survey of
  25 airports who were asked to submit all of the
  JV agreements in which DBE participation was
  being counted at their airports. A total of 35
  Joint Ventures were reviewed.

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• It is important and required that the agreement
  be reviewed in its entirety. Because determining
  the credit to be assigned for ACDBE participation
  based on the clearly defined portion of the
  work seems to be the most challenging part of
  the review effort, we have elected to focus on
  this area. Therefore, we have cited only the
  roles assigned to the ACDBE for purposes of this
  exercise. Please note that other elements (e.g.,
  financing, overall management, certification
  issues, etc.) must be reviewed and can also
  present challenges.

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Exercise 1 - Duty Free JV

• ACDBE Role
• Operate 2 locations generating approximately 25
  of the gross receipts
• Noteworthy terms
• Each party gets a percentage of their own sales
  as a management fee
• Prime gets 1.5 fee in addition

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Exercise 1

• 75 Non-ACDBE
• 25 ACDBE

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Exercise 2 Restaurant JV

• ACDBE Role
• Assist in recruitment and selection of staff
• Participate in the development of training and
  motivational tools and evaluating employee
  performance
• Advise the JV regarding the needs of the local
  community and represent the JV in the local
  community
• Make recommendations to the JV regarding local
  DBE/MBE/WBE vendors
• Assist the JV in evaluating JV performance and
  areas of opportunity
• Other responsibilities as delegated by the
  Management Committee

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Exercise 2

• 70 Non-ACDBE
• 30 ACDBE

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Exercise 3 Food/Beverage JV

• ACDBE Role
• Participate in management meetings
• Participate in all major business decisions
  (minority vote on committee)
• Participate in the review of the annual budget
• Participate in negotiations with airport
  regarding the concession agreement
• Analyze inventory turn and product selection
  process
• Provide customer service and efficiency based on
  review of 3rd party shopping service and periodic
  on-site reviews
• (Note Fee of 25,000 annually paid for above
  services Prime gets fee)

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Exercise 3

• 80 Non-ACDBE
• 20 ACDBE

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Exercise 4 Food/Beverage JV

• ACDBE Role
• Assist in the preparation and service of high
  quality food and beverages
• Assist in selecting and placing orders for food,
  beverage, supplies and services
• Assist in recruiting, selecting, managing and
  training on-site personnel
• Assist the financial Manager
• Assist the Operator with day-to-day
  communications with the airport
• Assist with formulating sales and marketing plans
• Assist with the review of ledgers for receivables
  and payables
• Assist with reconciliation of receivables,
  payables and expense reports
• Assist by reviewing bank account reconciliations
• Assist by reviewing monthly account analysis,
  verifying balance sheet and reports
• Assist by reviewing cost analysis, budgeting and
  other financial analysis
• Assist by reviewing depreciation schedules
• Assist by reviewing comprehensive financial
  statements and other accounting information
• Assist in selecting POS and accounting systems
• (Note Fee of 2.7 paid for above services)

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Exercise 4

• 58 Non-ACDBE
• 42 ACDBE

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Exercise 5 Gift/News JV

• ACDBE Role
• Sourcing, recruitment and selection of personnel
• Develop motivational tools, participate in
  evaluation of performance of work force
• Participation in setting sales goals, budgeting
  and financial planning, evaluating financial
  performance
• Evaluate day to day business, recommend
  improvements
• Develop and implement marketing and promotions
• Assist and advise regarding the needs of the
  local community
• Recommend local DBE/MBE/WBE vendors
• Assist in evaluating performance and identifying
  opportunities
• Assist in dealings with airport, city and state
  officials

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Exercise 5

• 70 Non-ACDBE
• 30 ACDBE

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Exercise 6 Food/Beverage JV

• ACDBE Role
• Employ 2 multi-unit managers who will
• Ensure quality product and service
• Assist in on-site training
• Assist with personnel issues
• Maintain clean facilities
• Learn necessary concession information
• Maintain cost control and quality standards
• Maintain good landlord, personnel and customer
  relations and communications
• Participate in strategic marketing and planning
  process
• Participate in loss prevention programs
• Attend and participate in weekly managers
  meetings
• Conduct monthly quality inspections
• Work to maintain certifications
• Work with local community to generate awareness
• Work with manager to improve product selection
  and presentation
• Conduct semi-annual price surveys
• Conduct annual quality assurance inspection
• Conduct monthly inventory check

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Exercise 6

• 60 Non-ACDBE
• 40 ACDBE

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Other items of interest from survey

• Subcommittees formed to allow ACDBE more control
  over specific units
• Guaranteed payments to ACDBEs
• Loans to the JV from 3rd parties
• Almost all had some form of Management or Owners
  committees (or both), almost all had certain
  items requiring unanimous vote
• Many contained requirements for ACDBE to remain
  certified or risk termination

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General Tips

• Dont be afraid to question you cant evaluate
  what you cant understand
• Require changes necessary to allow you to monitor
  participation
• Work with concessions/property staff in advance
  and throughout the process
• Develop good working relationships and
  communication with participants

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Thanks to FAA and DOT staff for working
diligently on the guidance