In light of the increased popularity of partnering, I thought it might be helpful to talk a little about teaming agreements. A teaming agreement is a contract between a potential prime contractor and another company to act as a subcontractor to pursue a specific government contract opportunity. Teaming agreements are usually formed before the prime contractor submits an offer to the government, but it’s also possible to enter one later in the procurement process.
Why would a company want a teaming agreement? At a high level, they allow companies to complement each other and offer the government a wider range of skills and abilities. There are also more specific reasons, like a subcontractor might want to develop a government reference or perhaps there are concerns about bonding capacity that two companies together can resolve.
While the goals of a teaming agreement are good, finding a partner and structuring such an agreement can pose challenges. This can’t be approached in a one-size-fits-all way, but here are a few general tips to help you find success:
- Conduct due diligence. Regardless of whether you are a prime or sub, know who you will be partnering with. Has your proposed partner been suspended or debarred, or have a history of poor performance? Are there conflicts of interest? Does your partner have the financial and human capital to perform? If you discover anything that makes you uncomfortable, think twice.
- Keep communications confidential. This is a no-brainer. If you plan to share proprietary information when preparing the proposal, you should ensure that your information remains confidential and protected. And, if your project involves intellectual property – like software – the teaming agreement is a good place to start protecting your IP rights.
- Consider exclusivity. Can you date others? Maybe the prime wants the ability to use more than one subcontractor. Alternatively, maybe the subcontractor is perfectly suited to help two primes competing for the same procurement. Evaluate the best option, make it mutual and spell it out it in your agreement. And, think ahead – you may want the exclusivity to survive the termination of the teaming agreement.
- Balance the need for flexibility. The procurement process is fluid and the details of government projects can change during the negotiation and performance. If you are a prime, you may want the ability to revise the teaming agreement in the event the government requests changes or is dissatisfied with the subcontractor. On the other hand, if you are a subcontractor, you want the guarantee of a subcontract because there is risk that a prime contractor could whittle away your participation. It is wise to include specific protections for both the prime and the subcontractor, such as the agreement is contingent on the subcontractor’s qualified personnel or the prime reserves the right to make reasonable changes later on.
- Maintain Control. This is especially critical in the federal market when small businesses are trying to compete for small business set-aside contracts. If it appears that a small business is controlled by another company in terms of financial reliance, management of the project, or even an ongoing relationship, the government may view the companies as “affiliated” and add together their respective revenues or number of employees. Consequently, the small business is no longer “small” and it can lose out on lucrative small business opportunities. To avoid this, make sure that you do not appear intertwined and establish corporate formalities to ensure an arm’s length relationship.
- Use Explicit Language: Make sure that your teaming agreement spells out your relationship and each party's intentions. You don't want to find yourself is the murky waters of a potentially unenforceable "agreement to agree." Including an actual subcontract as an attachment to the teaming agreement may be a good option.
If you have questions about a teaming agreement or other contracting matters, please seek legal advice from an experienced government contracting lawyer. If you don't know one, just give us a call. Traversant Group works with several well-respected and competent law firms and would be pleased to make an introduction.