The Teaming Agreement
BY JOSEPH VALOF
The Teaming Agreement is a commonly used marketing tool whereby a prime contractor and subcontractor agree to combine resources to bid on a major government system procurement. Typically, this agreement includes the actual bid of the subcontractor as an exhibit. The prime then may submit that bid as an exhibit to its own bid for the government work. In most cases, the prime is bound to use the subcontractor for the work once the bid is accepted, and the parties will follow the teaming agreement closely when finalizing the subcontract between the parties.
This article highlights some of the more important issues to consider in such a teaming.
Why enter into a teaming arrangement? A competent, smaller business may obtain access to government business that would otherwise be denied to it by teaming with the larger prime in bidding for government work. The prime contractor, on the other hand, can achieve greater control over its costs and more certainty through a pre-bid teaming agreement a potential subcontractor.
A teaming agreement is not considered a government contract, but a private one between two or more parties and is governed by contract law and/or the Uniform Commercial Code, as applicable. No government acquisition regulations (FARs or DFARs) must be referenced in the agreementthose are usually negotiated and included within the subcontract.
Under the FARS/DFARS, the federal government must recognize the validity of a contractor teaming arrangement provided that the arrangements are identified and company relationships are fully disclosed in an offer or, for arrangements entered into after submission of an offer, before the arrangement becomes effective. FAR Subpart 9.601. Full disclosure of the teaming arrangement, in other words, must be part of the primes bid.
Conversely, the prime must seek at least three competitive bids for any work to be done by a subcontractor unless the government has already approved the subcontractors bid as part of the primes original bid. The teaming agreement thus eliminates this requirement for the prime after it is awarded the prime contract.
A caveat: Regardless of any teaming disclosure, the government will hold the prime contractor fully responsible for performance under the prime contract. It may often prove helpful for the subcontractor to include this requirement as an obligation in the teaming agreement, as well as in the bid. It can also prove advantageous to the subcontractor to have a copy of the teaming agreement itself divulged within the bid to the government.
Like a Letter of Intent?
Like a letter of intent (see my article in the preceding issue) a teaming agreement serves as a temporary bridge to a final contract. That is, the successful teaming agreement will always be superseded by a fully negotiated subcontract after the government accepts the prime contractors bid.
Unlike a letter of intent, however: (i) the final contract is with a third partythe government; (ii) all provisions necessary to govern the legal relationship between the parties must be includedbrevity is not recommended; and (iii) a teaming agreement is always binding on both parties.
The following are some important business provisions to be addressed in any teaming agreement:
- Exclusivity. May either party retain a right to change its mind and do business with another prime or subcontractor once the government has chosen the winning bidder?
- Should the agreement oblige the prime to award a subcontract to the subcontractor, or may the subcontractor merely rely on the implied covenant that the parties must negotiate in good faithcase law supports the proposition that an agreement to negotiate in good faith does not require that a final agreement actually be achieved but only that the parties work to reach an agreement actively and in good faith?
- To what extent should the parties confidentiality and data rights be protected?
- When and how shall termination occur?
- Ought the subcontractor to be allowed to participate in negotiations with the government customer concerning the contribution of the subcontractor to the teaming?
- Lastly, should the prime agree in advance to compensate the subcontractor if the government disapproves the subcontract for any reason?
Inevitably, of course, there will be many other business and legal considerations that need to be considered and accounted for in the teaming agreement. Each individual situation is different and may require expert business and legal assistance to ensure that your companys business objectives will be met and its legal rights fully protected.
Comment: A properly negotiated and drafted teaming agreement can prove essential to the effective bidding for and fulfillment of a government contract.
© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1996; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.