Teaming Agreements Explained
A teaming agreement is a preliminary agreement between all or some of the parties deriving from a bid or proposal, to join together for the performance of a contract if an award is made. It describes how the drafting parties intend to pursue a prime/subcontract arrangement if one or both are awarded the contract. It can describe a general framework of cooperation, including responsibilities and obligations, while also allocating the risks, costs , and benefits of the potential contract between the participants.
The purpose of a teaming agreement is to demonstrate to the prospective government customer both the joint capabilities of the parties and the ability of those parties to work together. Government contractors enter into teaming agreements to position themselves for a specific upcoming contract opportunity or to fill a gap in their technical or performance capabilities. The proposed "prime" team member can use the teaming agreement to land the specific contract opportunity and the proposed subcontractors secure a contractual relationship with the prospective prime and the related financial benefit.
Key Elements of a Teaming Agreement
The key components of a teaming agreement can vary depending on the nature of the proposed project, but there are certain essential features that should be included in all teaming agreements. At a minimum, a teaming agreement should describe by name all of the parties. The teaming agreement should also include a general description of the work to be performed. This is typically set out as a short paragraph at the beginning. Closer to the end of the teaming agreement, however, there should be a more detailed description of the scope of work to be performed. Depending on the track records and size of the participants, putting together the more detailed description may require a considerable amount of work. In that event, the more detailed scope of work should be included in a separate attachment or exhibit. Another required and salient feature of a teaming agreement is how work will be apportioned amongst the participants. Depending on the nature of the work, the way this will be accomplished will differ. For contracting projects, the parties must be familiar with the requirements for CRA. They must also consider whether the subcontractor or prime contractor should allocate work to only small businesses or to large businesses too. Because subcontracts exceeding the threshold amount must be awarded on the basis of competition among those small business concerns that can provide the supplies or services required. The dollar threshold may change from time to time with the passage of new laws and the promulgation of new regulations. If the work is being done on a task order or on a multiple award vehicle, the words "fair opportunity" are a third means of allocating work. The splitting of work among the teaming partners must be negotiated so that each party obtains a satisfactory portion.
Advantages of Using Teaming Agreements
For large and small businesses alike, teaming agreements can be extremely beneficial and help an entity successfully compete in the government contracting arena.
First, they are a good way to pool resources, i.e., share costs for bidding efforts, share resources on contract performance and obtain resources (if necessary). For example, Team A may be bidding on a contract that requires service in Region A and Region B. Team B can provide the requisite services in Region B, while Team C can provide the requisite services in Region C, enabling Team A to offer the full service scope sought by the Government and separately the localized services the Government wants. Having the full and complete service or equipment capability is the first step toward efficiently winning that contract.
Second, teaming agreements can mitigate risks that would otherwise be present. For example, if Team A fails to win the contract, Team B may still win another, and Team C could win Team A’s contract if Team A fails to perform. The Teaming Agreements can, therefore, provide a contingency plan for the build-up of the Team, thereby reducing a contractor’s risk of dissolution or degradation of past performance in the eyes of the Government if it does not happen to win any particular award. While the risk of losing a contract is always present, it should not prevent a company from competing and, teaming agreements can actually help the company reduce that risk.
Third, teaming agreements prove to be a useful tool in arrangements between large businesses and small businesses and, in particular, to large businesses looking to comply with small business subcontracting requirements (note: the rules for complying with the incorporated FAR Subpart 19.7 – including limitations on subcontracting and the non-manipulation of size standards – must always be consulted and are outside the scope of this article). They allow smaller competitors to get their foot in the door, secure references and gain valuable experience that they can later market to other potential prime contractors. Most of the time this is a win-win among the parties – the larger company gains small business credit toward its goal (and perhaps the lower prices of a smaller competitor), and the smaller business gets invaluable experience to make future competition for contracts more viable and a bit less risky. Accordingly, teaming agreements are not a one-size-fits-all approach.
Common Issues and Solutions
The formation of a teaming agreement often leads to some common issues that can affect the execution of the agreement if not addressed properly. Companies can avoid pitfalls by anticipating and preparing for the following challenges:
Complexity of Agreement. As previously noted, the mutual agreement between the parties has to be clear and unambiguous. However, in some cases, the parties include so many details, or write the agreement as if they were writing a contract with their client or a large subcontract, that the length and complexity of the teaming agreement actually make it onerous to read and of little practical use. These types of overly-complex and overly-broad teaming agreements could also raise concerns about the risk of loss of prime contractor status or other consequences in the procurement process when the Government is considering the proposal submitted by the eventual awardee that had such a teaming agreement, or that the proposal has inadvertently become part of the teaming agreement and thus legally binding on the parties. To avoid these issues, the parties should keep in mind that as long as the teaming agreement addresses specific issues and includes the required information in a commercially reasonable manner, it can be brief and to the point. It is important to balance the obligation to capture all relevant details against the need to keep the agreement simple and easily understood.
Noncompliance with proposal deadlines. It is not uncommon in Government contracting for a teaming partner to fail to meet a deadline imposed by the Prime in order to draft its portion of the proposal or to track the proposal progress and/or status. The Prime may find itself burdened with all the responsibilities related to the submission – spending much more time and making more effort to prepare a proposal that was supposed to be mutually done by the Prime and its teaming partner. To ensure that the team develops the proposal in a time-efficient and strategic manner, the parties should refer to their teaming agreement to identify the responsibilities of each of the parties and, if these are not thoroughly addressed, take the proactive initiative to get the commitment of their counterpart to meeting key deadlines. Challenge your teaming partners to review, comment, and deliver their portion of the proposal on time, and remind them of what is at stake if they do not – which is the likelihood of losing out on the opportunity.
Weak communication. All too often, representatives of teaming partners operate in a vacuum and have little outside contact with their counterparts at each of the other partnering companies. The parties rely on management-level contacts, but such a top-down flow of communication can cause the individual members to lack understanding of their own roles and responsibilities. Again, refer to the teaming agreement to see who is responsible for communicating with the various representatives involved in the proposal preparation process and allow for some room for negotiation with your counterpart to reach an agreement on who should do the communicating. This should be in the written teaming agreement, but should also be discussed when negotiating the agreement.
Diverging perspectives about a strategic teaming relationship. Even though teaming arrangements are created to maximize the diverse strengths of the companies involved, the parties’ perspectives may still diverge during the preparation of the proposal, and even so far as to affect their overall partnership going forward. One approach to addressing this risk is to identify the parties’ various elements of risk. Rather than trying to accommodate the different concerns, the two parties can work together to segregate their risk in a way that maximizes the benefits from pursuing a teaming agreement. For example, the teaming agreement might cover the transition of a project from one of the parties to another once a particular milestone is reached, or a decision to abandon a particular line of business. This partial transfer of ownership allows the parties to pursue new business without being tied to a long-term commitment to another company. They will also be able to put into writing any other aspects of the agreement that would need to be shared among the companies’ executive officers.
Managing Multiple proposals. When a company teams with more than one other company, which is very often the case, it is important to avoid duplicate requests for the same information or materials. Each member’s proposal could have non-competitive information (ex. pricing, capabilities and experience) that should be kept between those two members and away from those who are working with the other members of the team. To address this issue, consider the following: For each opportunity, prepare a tree structure listing each proposal, and then graphically indicate members working on each of the efforts (this will also create some pressure on the members to communicate with their counterparts or risk positioning themselves as a barrier to "winning" the proposal). Consider aggregating the sporadic requests for information in the paperwork, asking only for single sources of information rather than requesting it from every person appearing in the tree structure. Then also request their confirmation of the source as a single point of contact from which all information will be consolidated and submitted, and agree on a regular timeline for updating the information in accordance with the RFP requirements.
Tired proposals. If a teaming partner has a history of losing work, it may tend not to put its full effort into the preparation of its part of the proposal. Also, the challenge of competing for the same project as other teaming partners can make it difficult for a company to be motivated to put its best work into the proposal. The solution to these problems is to have the various representatives within the same company give their feedback on the initial draft of the proposal, and also to keep the team members aware of the competition from their perspective.
Example of a Teaming Agreement Template
A common teaming arrangement is a cost allocation (sometimes called a "cooperative" teaming agreement). For under-funding victims, the idea is to essentially purchase a second teaming partner with funds saved from the cost allocation in order to best position your firm to win a contract. The following is a teaming agreement template most often used for general ideas.
TEAMING AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the [Day] day of [Month], year [Year], by and between THE [Name or "Team Leader"] ("Team Leader"), and THE [Name or "Team Member"] ("Team Member").
WHEREAS, TEAM LEADER may submit a proposal to the government through [Name or "Department," if applicable] and its Government Contracting Offices for a [Program or Project "Program"] to be procured under the laws of [State/Agency], and acting through its representatives, hereby proposes to amend its existing relationship with TEAM MEMBER [or "proposes to form a new relationship"] to submit a team proposal [. (Other Options: "Price Proposal" or "Technical Proposal")] for the [Program].
NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows:
- General understanding. TEAM LEADER and TEAM MEMBER agree to work together towards the successful pursuit of an award for THE [Program] contract. This Agreement shall establish the general terms for the proposed teaming relationship, which will ultimately be formalized in a definitive teaming agreement at the time when the parties have agreed on the exact contractual provisions. In addition, whenever "propose" and/or "bid" are used in this Agreement, the term shall also include any offer to provide services or supplies "at or below" a certain level, as determined by the team in its sole discretion. The parties further agree that TEAM MEMBER shall retain independent control and judgment over the performance of its role.
- Partner’s contribution to the team. TEAM MEMBER agrees to provide the following goods and/or services: [to be filled in with specifics].
- (Optional) Government billing rates, estimates or "bear their own costs" provision. TEAM MEMBER shall charge TEAM LEADER up to [$XX] per hour for professional personnel , [$XX] per hour for project professional personnel, [$XX] per hour for clerical personnel, and [$XX] per hour for senior professional personnel. TEAM MEMBER shall bear all project costs for the secondary person if it does not receive an award. The parties further agree that TEAM MEMBER shall not take any action that will compromise the other party’s eligibility for an unclassified contract. TEAM MEMBER is a small business [or "other category"] under the [DBE, DBE, HubZone, Veteran-Owned, Small, Women-Owned, etc. regulatory] guidelines.
- Factors for Managing the Team. The parties agree to work together through [insert mechanism]. In addition, the parties agree that TEAM LEADER shall have responsibility for direct communications with the contracting officer, and act as the point of contact for all matters involving substantive information or requests to the Agency regarding this teaming relationship.
- Proposal Constraints. The parties agree to work together in good faith to ensure that the proposed work is completed before or on the final submission date. The parties agree that both team members will participate in activities related to [insert activity] to increase the likelihood of a successful award for the [Program].
- Financial Arrangements. If both parties so agree, costs incurred by TEAM MEMBER will be paid by TEAM MEMBER or otherwise by TEAM LEADER. Costs and expenses associated with the performance of this agreement shall be borne by TEAM MEMBER and will only be reimbursed if the contract for the [Program] is awarded to TEAM LEADER. Reimbursements will be made at the rate of [insert rate] of the price offered by TEAM MEMBER for the [Program] in its proposal. Reimbursable costs incurred include: [insert costs].
- Assignment. Generally, neither party shall assign, delegate or transfer this Agreement in whole or in part without the consent of the other party.
- Miscellaneous. The parties agree that TEAM MEMBER shall be responsible for evaluating the past performance of all of its subcontractors while it has complete discretion as to how it conducts itself in the past-performance evaluation process.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
Legal Aspects of Teaming Agreements
As with all agreements, teaming agreements should comply with contract law principles of both the jurisdiction(s) in which the agreement was negotiated and entered into, and the jurisdiction(s) in which the teaming parties are located. Teaming agreements also should comply with any applicable federal laws and regulations (including regulatory agency guidelines), and we will highlight a few of the most common below.
One frequently overlooked issue is that any teaming agreement that contemplates bids for government contracting opportunities should comply with the Small Business Administration’s affiliation rules (13 C.F.R. § 121.103). These rules are designed to promote small business interests when the government makes contracting awards.
As discussed above in the definition of "Team Arrangement," teaming parties will typically address their proposed cost, technical, and pricing strategies in their agreement. Many of these strategies must also comply with the federal procurement regulations (FAR and DFARS) that govern the types of contracts at issue, including the FAR’s pricing and cost requirements applicable to federal government contracting. (For example, FAR 15.404-1(a)(2) provides that prospective prime contractors should "produce cost or pricing data when required . . . to support the price evaluation, negotiations, and contract price negotiation memoranda," in general, where the value of the contract exceeds certain thresholds.)
Teaming parties also must submit to mandatory disclosures as part of source selection and contracting for DoD contracts valued at more than $7.5M, and for other federal government contracts valued at more than $5M, but only if cost or pricing data (or certified cost or pricing data) are required to be submitted. (See e.g., FAR 3.10 and DFARS 204.37.) When cost or pricing data are required, prime contractors must make written disclosure in their proposals disclosing all violations or possible violations of the law. Prime contractors also have an obligation to modify their contract to disclose violations committed after contract award.
Echoing similar disclosure requirements above, teaming parties that are even partners must separately disclose to the government any potential conflict of interest, pursuant to the FAR’s OCI rules. (FAR 9.508(a).) This will occur, for example, where competing prime contractors would be competing for the same government procurement opportunity.
Prime contractors are also generally subject to an "organizational conflict of interest" (OCI) review, which can include a review of the teaming parties’ systems or internal policies and procedures for preventing or mitigating conflicts. (FAR 9.508(a)). In addition, the teaming parties should be cautious about the so-called "one bite at the apple" rule, which provides that a prime contractor cannot bid on a contract that it would be precluded from bidding on itself.
The teaming parties should also be aware of any related Teaming plan NDAs and restrictive covenant provisions. For example, teaming agreements often contain NDAs, which are intended to protect the parties’ and the team’s confidential information, including as part of the source selection process. (Source selection management and evaluation procedures, and associated NDAs that protect source selection materials, are governed by FAR Subpart 3.1 and Section 3.104. These rules also include rules governing organizational conflicts of interest, contractor and government compliance with criminal bribery laws, and compliance with the Procurement Integrity Act (see 41 U.S.C. § 2101 et seq.).)
Teaming agreements may also include restrictions on the completion of the work without permission from the teaming partner. Teamming parties may also choose to limit the duration of the teaming agreement to correspond to the duration of performance for the resultant contract.
Case Examples of Effective Teaming Agreements
The Department of Labor (DOL) has traditionally interpreted its "small business set-aside program" under Section 8(a) of the Small Business Act very narrowly. Because of a much broader interpretation by the Small Business Administration (SBA), contractors face a problem – how to compose a teaming arrangement that meets the requirements of both the DOL and SBA. As the article "NAICS Change Could Transform the Set-Aside Process" illustrates, this very problem was addressed by Sierra Nevada Corp. (SNC), who recently won a GSA IT 70 contract utilizing an innovative teaming arrangement. Below is a video to the story along with a brief explanation of what Sierra did and how they were able to win their contract.
As the video explains , SNC comprised a team of 8(a) companies and a joint venture with a large business and successfully wrote their teaming agreement to satisfy both DOL and SBA requirements. Since corporations must be small to qualify for certification under the 8(a) program, SNC was able to avoid size and affiliation problems by selecting 8(a) companies located outside of California. By deftly navigating an opportunity previously thought lost, this case study serves as a prime example for business owners facing similar dilemmas.