Today, more and more businesses are using teaming agreements in Government contracting. Small companies have reached out to me, wanting to know my feelings about using a teaming agreement to get their first government contract. Usually, I would say no, but I have thought that this answer might be a little premature. If a small business can put into place safeguards to protect themselves and they and their teaming partner stand behind the provisions in the teaming Agreement and the proposal, then yes. A teaming agreement may be a way to get your first contract. HOWEVER, that is a business decision that only you must make. But we are getting ahead of ourselves, let’s take a step back and look at the Federal Acquisition Regulation (FAR) definition of a teaming agreement.
Federal Acquisition Regulation (FAR) – Teaming Agreements
The Federal Acquisition Regulation, otherwise known as the FAR, is the bible for Government contracting. This regulation governs the acquisition process for the United States Government. As a result, Agencies are acquiring products or services must use these regulations. Nearly all federal government agencies must comply with the FAR. However, two agencies are exempt. The Federal Aviation Administration (FAA) and the U.S. Mint have their own procurement rules. If you are seeking government contracts outside of the FAA and U.S. Mint, then you will want to become familiar with the FAR.
Federal agencies also can have supplements to the FAR. These supplements provide additional guidance to the acquisition regulations. For example, the Defense Federal Acquisition Regulation Supplement, known as DFARS, provides further governing procedures that procurement officials and contractors must follow when procuring goods and services.
The FAR contains 53 subchapters or parts that cover different aspects of the federal acquisition process. Contracting Officers will insert clauses from the FAR and Supplements into the contract that you receive. Remember that you are responsible for complying with each provision contained in your contract. Also, there may be agency-specific clauses included in your contract that was in the agency supplement to the FAR. You will also be responsible for complying with those specific clauses.
Why mention the FAR? Because the FAR contains guidance on teaming agreements. Specifically, FAR Subpart 9.6 governs Contractor Team Arrangements.
FAR Subpart 9.6 – Teaming Agreements
What is a teaming agreement? A teaming agreement is a contract between a prime contractor and another company to act as a subcontractor under a specified government contract. Two or more companies may also form a new legal entity to act as a potential prime contractor by creating either a partnership; or a joint venture. Before submitting your proposal to the Government, you will want to finalize your Teaming Agreement. Remember, the Teaming Agreement goes to the Contracting Officer with your proposal. The completed or amended Teaming Agreement may be submitted after the announcement of the apparent successful offeror. Is there any other guidance that I can review? Yes, there is. Let’s look at the Code of Federal Regulations, otherwise known as the CFR.
The Code of Federal Regulations, precisely 48 CFR §9.602 which states that contractor team arrangements may be desirable from both a Government and industry standpoint. These arrangements can complement each unique business capabilities and offer the Government the best combination of performance, cost, and delivery for the product or service. Typically, these arrangements are formed before submitting your proposal but may happen as late as after the contract award. Now let’s look at the benefits of Teaming Agreements.
Benefits of Teaming Agreements
Generally, a teaming agreement only applies to one solicitation. As a result, this limits the parties’ obligations to one another. Also, Team members can tailor their negotiations to the specific solicitation and incorporate a variety of termination provisions into the Agreement. Teaming Agreements allow potential business partners who are unfamiliar with each other to try a small contract together before pursuing a more significant contract. Thus, saving the joint venture opportunities for a later date. Since each party is responsible for their proposal writing costs, this allows each business to expend the costs. Whereas, a joint venture would include the proposal costs for each party. Lastly, if the parties comply with the limitations on subcontracting, the parties will not be considered “affiliates” for small business size calculations.
Please note that if you submit your offeror and then form a teaming agreement, this Agreement must be disclosed to the Government before the Agreement or arrangement becomes effective. See 48 C.F.R.9.603 for more information.
Drawbacks to Teaming Agreements
Since teaming agreements are limited to one solicitation, the prime and subcontractor must renegotiate the teaming Agreement for each solicitation. There is always a risk that the prime contractor and the proposed subcontractor will be unable to reach an agreement on the terms of a subcontract. Finally, the prime contractor is the only party that can communicate with the Government and therefore bears the entire risk of contract performance. However, if you do your due diligence before teaming with another business, you should reduce your risk.
Due Diligence – Teaming Agreement
Many small businesses overlook the due diligence process. They fail to acknowledge that this is a necessary step to protect their business interests. Small Business Owners will typically skip this step because they fail to focus on eliminating risk and focus on getting that first contract.
Five Due Diligence Steps – Teaming Agreements
The first step is to confirm that the proposed teaming partner is not suspended, debarred, or proposed for debarment by reviewing the company profile on the System for Award Management (SAM) website.
The second step is the review of the proposed teaming partner’s past performance history.
The Third step is confirming that the proposed teaming partner is in a sound financial position to perform their portion of the contract.
The Fourth step is to consider the likelihood that the proposed teaming partner would receive the prime contract award.
The last step is to review the proposed teaming partner and ensure that they don’t have a conflict of interest that could prevent them from receiving the contract award.
My Thoughts On Teaming Agreements
Go back and reread the last paragraph. Did the contractor reach out to you? Do they have experience as a government contractor? Can you honestly say that this company did its due diligence with your business? Look at your company and run through those questions from the last paragraph. What does your business offer the proposed teaming partner? The biggest thing to remember is you do not want to appear as a pass-through. Therefore, you must bring something to the table more than your set-aside status.
You Must Provide More Than Your Set-aside Status – Teaming Agreement
Can you provide anything other than your set-aside status? You don’t have to have Government contracting past performance. I am not saying that. But you must provide past performance, be financially sound, and have the resources necessary to perform on the contract. If you do not, then consider passing on this opportunity. More than likely, the business is wanting to use your set-aside status. The only way to know for sure is to talk to them. Do your Due Diligence on the potential teaming business? Now let’s move on to the top clauses to be in your teaming Agreement.
Teaming Agreement Clauses.
Your teaming Agreement will vary depending on the industry, government agency, and the solicitation or contract award. Each party should consider including the following general clauses in their teaming agreements.
1st Clause Designate Prime Contractor and Subcontractor
The first Clause is the designation of the prime contractor and subcontractor. The Federal Government will want to see that you defined each party to the Agreement. They are going to want to know which party is fulfilling each position. The critical point to remember is that the Government may reject a proposal that has more than one party acting as the prime contractor. If you want more than one party to be the prime contractor, then consider a Joint Venture.
2nd Clause State Purpose & Scope of the Agreement
The next Clause is the purpose and scope of the Agreement. Your Teaming Agreement is limited to one solicitation and one scope of work. You need to specify which business is responsible for what portion of the statement of work. Also, you need to state the time frame for this Agreement.
3rd Clause Declare how Confidential and Proprietary Information Will Be Handled.
Don’t forget about confidentiality. The prime contractor and subcontractor will likely share confidential and proprietary information when preparing and submitting a proposal to the Government. As a result, they should ensure that their confidential and proprietary information remains protected. Remember to include confidentiality clauses or incorporating by reference a previously executed non-disclosure agreement between the parties.
4th Clause State how Intellectual Property will be allocated and Protected
Next, add a provision for protection and allocation of intellectual property. If either party anticipates the sharing of existing information or the creation of new technical data, computer software, inventions, patents or other confidential or proprietary information for the proposal then include a clause.
5th Clause- State Who Will Handle What In The SOW
You will want to clearly allocate between the parties the scope of work (SOW). The parties should clarify their respective responsibility in the creation and submission of the proposals, how the costs of proposal preparation will be shared between the parties, and state that the relationship between the parties is that of independent contractors and therefore neither party has the right to bind the other party.
6th Clause- State the duration of the Agreement & Termination Provisions
You will need to state the length of this Agreement and any termination provisions. The termination clauses need to be based on several events. These events including, but not limited to, the award of a subcontract to the subcontractor by the prime contractor. The Government’s award of the contractor to an entity other than the prime contractor. Or the Government’s cancellation of the solicitation before award. Also, the parties’ inability to agree on the terms and conditions of the subcontract. Make sure to include a provision covering either party regarding suspension, debarment, proposed debarment, or ineligibility to enter into a federal government contract. Don’t forget to add a rule governing organizational conflict of interest.
7th Clause – Declare How Disputes Are to Be Handled
The Government is going to want assurances that should a disagreement take place between the parties that the parties have a process in place to handle them. This process can be mediation, arbitration, or Court Dispute Resolution. You also should include termination clauses, whether you will select Choice of Law or Choice of Forum.
8th Clause – Limitation of Liability & Indemnification
Each party should consider including limitation of liability and indemnification clauses.
You want to limit the liability of each party from seeking special, incidental, consequential, or punitive damages from the other party that are significantly over the potential harm caused by a breach of contract. An indemnification clause allows the companies to customize their risk allocation and provide for a degree of certainty of recourse. Also, list any remedies that might otherwise be unavailable like attorney’s fees.
9th – Equitable Remedies in Teaming Agreement
You need to address equitable remedies for a breach of the Teaming Agreement. An example of equitable remedies like injunctions is essential if the teaming Agreement provides for exclusivity or contains confidentiality obligations. Remember, confidentiality obligations allow the non-breaching party to stop the breaching party’s damaging conduct immediately.
10th – No Assignment Without Consent – Teaming Agreement
You will need to decide on how to handle the ability of your teaming party to assign this Teaming Agreement to a third party without your consent. This will avoid the possibility of being obligated to team with a competitor or an entity that you have not properly vetted. Also, specify if permission is required when a change in control, merger, or acquisition has happened.
11th – Exclusivity & Non-Compete
Another clause that should be considered is to prevent the other party from participating in a proposal with another prime contractor or subcontractor for the same procurement covered by your teaming Agreement and for the work allocated to the subcontractor. Please refer to FAR clause 52.203-6 “Restrictions on Subcontractor Sales to the Government which prohibits a higher-tiered contractor from preventing a subcontractor from selling goods or services directly to the Government. In addition. A non-solicitation clause that prohibits both parties from soliciting employees of the other party for a specified period of time. After all, you do not want to lose a key employee due to the Teaming Agreement.
13. Nature and Key terms of the Expected subcontract Between Team Members
I will be the first to admit that it can be challenging to identify and negotiate all the proposed subcontract terms in the Teaming Agreement. However, the parties can identify the following terms. The contract type. Is the contract a firm-fixed-price or a cost-plus fixed fee? This information can be easily obtained from the solicitation. What are the payment terms? Does the contract allow for milestone payments or progress payments? If so, enter this information into the teaming Agreement. Again, this information is in the solicitation. Also, list the contract duration and any other key terms.
Drafting an enforceable Teaming Agreement
It is best to hire an attorney to write your first Teaming Agreement. Make sure to hire an experienced attorney that specializes in Government contracting. You want to increase the likelihood that your teaming Agreement is enforced against a teaming member and not construed by a court as an unenforceable agreement. Also, make sure to use contracting language such as “shall subcontract” with the subcontractor. Also, do not include language like parties will enter “good-faith negotiations.”
Define the Responsibilities In Your Teaming Agreement
You want to define the provisions as much as possible to help avoid the teaming Agreement’s characterization as vague and indefinite. Define the responsibilities of the parties to each section of the statement of work. The subcontract pricing should be included with a clear breakdown of the components. You also need to define the duration of the prime contract. If possible, attach the subcontract as an exhibit. This should be easy to do as you will include this in your proposal. If necessary, you can amend the Agreement either before or after (shortly) the proposal submission to better define the scope of work and pricing terms.
Avoid Including the Following in Your Teaming Agreement.
Your Teaming Agreement should not contain a provision for termination of the Agreement based on the failure to negotiate a subcontract. Also, you want to avoid any requirements that are vague or one-sided.
Expectations – Teaming Agreements
I do not expect you to be able to write a teaming agreement by following everything mentioned here. The purpose of this episode is to educate you on teaming agreements. It is always advisable to hire an experienced attorney. I would incur this cost, at least until you are comfortable with the required clauses for a teaming agreement.
Conclusion on Teaming Agreements
We hope you have learned a lot regarding teaming agreements and that you will put into place any safeguards you can before entering into a teaming agreement. Remember that many businesses are super nice and will agree to anything until it is time to put it in writing. I have seen many businesses change once they win the contract. Once the contract is issued, does the true colors of the business come out.
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