7. EQUIPMENT

This section normally deals with

• the acquisition, lease, use, trade, and loan of equipment to the JV by either party or from some outside concern (as well as its disposal).
• methods of valuation, compensationCompensation: something (such as money) given or received as payment or reparation (as for a service or loss or injury)., depreciation, and use.

This section is in a way a part of the capitalCapital: cash, property, equipment, services, and contracts or leases. section. However, machinery and equipment have other aspects that require attention, over and above their value as capital contributions. A comprehensive and thorough Due DiligenceDue Diligence: a financial and technical investigation to determine whether an investmentInvestment: the purchase of a financial product or other item of value with an expectation of favourable future returns. Generally, “investment” means the deliberate use of money in order to make more money. is sound. Each party to a business agreementAgreement: any explicit, signed document that is negotiated and includes mutual concessions or limitations placed on both sides. Examples are Negotiation AgreementsNegotiation Agreement: an early agreement in the mining process, likely to occur in the Exploration Stage, which would outline the basis of the relationship between the Aboriginal group and the mining company and how the relationship will evolve if the mine moves forward. , Exploration Cooperation Benefit Agreements, Socio-Economic Participation Agreements. uses Due Diligence to ascertain the actual quantity and quality of the assets which the others claim they can contribute. must check every claim a party makes about equipment s/he intends to contribute. An independent assessment of the value of the equipment is necessary. Standard industry rate structures for renting or leasing equipment are also needed.

Again, Kitsaki's experience illustrates the principles to apply in any JV negotiation to which parties bring existing assets.

Each party to Kitsaki’s trucking Joint VentureJoint Venture: commonly, a business to which two or more parties contribute the essential land, capital, and services, in return for a share in its ownership and control. (Note: the Joint Venture is very strictly defined under Canadian law.) contributed some pieces of equipment, and leased or rented others. The equipment was of varying ages and conditions and in various stages of depreciation. There were two basic questions for the negotiators:

• How is each party to be compensated for its equipment?
• What shall be the ground rules for using this equipment in the business?

If the equipment is contributed capital, the parties must agree how its value is to be assessed and recognized in the share allocation. If the equipment is leased or rented, on the other hand, a payment schedule has to be worked on the basis of standard industry rate structures.

For the policy regarding the use of equipment, you will have to agree to compensation formulas. When the parties don’t make equal contributions, things can get complicated. Sharp operators can overcharge for the use of their equipment. They can also use their own equipment wherever possible in order to maximize their return.

Kitsaki didn't have nearly as much equipment as our partner did. They were also to act as the operator. That meant we had to negotiate clauses to ensure that they wouldn't give their equipment preferential use. Compensation was further complicated by the fact we reserved market segments for the exclusive profit of each party. If only one party was to benefit from a haul that required special equipment, that party would also have to see to financing the additional equipment, rather than expect the partnership to.

Sometimes equipment leasing or renting to the venture can be straightforward. Both parties benefit proportionately after all costs have been charged against the Joint Venture. This was not the case in our trucking venture! If equipment issues are important to your Joint Venture negotiation, consider making available to your team someone with detailed technical knowledge.