The Key Elements of a Teaming Agreement

George W. Ash and Erin L. Toomey

 

 

Entering into teaming arrangements to pursue government contract opportunities has become increasingly popular in the past several years. Teaming arrangements permit two or more entities to coordinate a response to a government solicitation and provide a mechanism for the parties to contract with one another if the government awards the contract to the team. Federal Acquisition Regulation (“FAR”) Subpart 9.6 addresses Contractor Team Arrangements and distinguishes between teaming agreements and other teaming arrangements. In this article, we will discuss the key principles of a teaming arrangement, the difference between teaming agreements and other teaming arrangements, and the top ten clauses to include in a teaming agreement.

Key Principles of Teaming Arrangements

As defined in FAR Subpart 9.6, a contractor teaming arrangement is either when (1) two or more companies form a partnership or joint venture (i.e., a new legal entity) to act as a potential prime contractor; or (2) a potential prime contractor agrees with one or more other companies to act as a subcontractor under a specified Government contract or acquisition program. Both types of teaming arrangements are typically formed before a prime contractor submits an offer to the Government. The Government recognizes the validity of contract teaming arrangements, provided the arrangements are identified and disclosed to the Government.

Teaming Agreements vs. Other Team Arrangements

When deciding whether two entities want to form a partnership, corporation or joint venture or if the parties want to enter into a teaming agreement, there are benefits and drawbacks to both approaches that should be considered by the parties. The benefits of forming a partnership, corporation or a joint venture include: (1) the partnership, corporation or joint venture can be set in place to cover multiple solicitations and contracts; (2) there may be tax savings; (3) liability can be limited to the new legal entity, depending on the form of the entity; and (4) the entity may be able to avoid the high cost structure of its parent corporations, which is important if price is a major source selection criterion. The drawbacks of forming a partnership, corporation or a joint venture include: (a) a partner in a joint venture possesses liability for the obligations of the joint venture; (b) management issues or partner disagreements may be difficult to mitigate; and (c) a joint venture may lock a contractor into a relationship with the other company for a longer period of time than the contractor intended. Teaming agreements, on the other hand, often only apply to one solicitation or Government program and therefore limit the parties’ obligations to one another.

Top Ten Clauses to Include in a Teaming Agreement

If the two entities determine that they would prefer to enter into a teaming agreement rather than creating a separate corporation, partnership or joint venture, there are certain contract clauses that the entities should address in the teaming agreement. The top ten clauses the parties should address in the teaming agreement are as follows:

1. Designation of a Prime Contractor and a Subcontractor – In a teaming agreement, the Government typically requires the entities to designate one party as the prime contractor and the other party as the subcontractor. The Government often may not accept a proposal in which two or more parties act as the prime contractor.
2. Purpose and Scope of the Agreement – Since teaming agreements are established for a limited purpose, it is important to define the solicitation or Government program for which the parties want to team.
3. Incorporation by Reference of a Non-Disclosure Agreement – As the parties will likely share confidential and proprietary information with one another during the course of preparing and submitting a proposal to the Government, the parties will want to ensure that their respective confidential and proprietary information will remain protected.
4. Protection/Allocation of Technical Data/Inventions/Patents – If the parties anticipate the sharing of existing and/or the creation of new technical data, inventions or patents during the course of submitting a proposal or performing the contract, the teaming agreement is a good place for the parties to protect and/or allocate such rights.
5. Division of Responsibilities Between the Prime Contractor and the Subcontractor and Definition of the Relationship of the Parties – The parties should clearly allocate the scope of work between the prime contractor and the subcontractor. The parties should also clarify which entity has what responsibilities in the creation and submission of the proposal to the Government. Last, the parties should clarify in the agreement the relationship between the parties, such as that neither party shall have the right to bind the other party.
6. Duration of the Agreement and Termination Provisions – Often teaming agreements can expire upon the occurrence of one of several events including, but not limited to, the award of a subcontract to the subcontractor by the prime contractor, the Government’s award of a contract to an entity other than the prime contractor, the parties’ inability to agree on the terms and conditions of a subcontract, the suspension or debarment of either party, or at the election of either party upon written notice.
7. Limitation of Liability – The parties may want to set limits on the scope of their potential liability to one another.
8. No Assignment without Consent – The parties may want to limit a party’s ability to assign the teaming agreement to a third party without the consent of the other party.
9. Exclusivity/Non-Competition – The parties may want to limit the ability of the other party to participate in a proposal with another prime contractor or subcontractor for the same procurement covered by the teaming agreement and for the work allocated to the subcontractor.
10. Identify the Nature and Key Terms of the Expected Subcontract Between Team Members – For example, if the subcontractor requires the subcontract award to be a FAR Part 12 Commercial Item Subcontract, the parties can include this requirement in the teaming agreement to prevent any issues during subcontracting. The same is true for issues such as contract type, payment terms, etc.

Although teaming agreements come in a variety of shapes and sizes, the clauses noted above should at least be considered by the parties when entering into a teaming agreement.

George W. Ash and Erin L. Toomey are members of the law firm of Foley & Lardner LLP in Detroit, where they specialize in government procurement issues. They may be reached at (313) 234-7100.

Note: This update provides information of general interest presented in summary form, and does not constitute individual legal advice.