Teaming arrangements are simply a form of business agreement in which two or more firms join together for a specific purpose, such as the performance of a particular contract or project. The most common form of teaming arrangement used for Federal contracting is a prime contractor-subcontractor agreement, in which one company is held out as the prime contractor that will take the lead role, interfacing (i.e., standing in privity) with the Government; and one or more additional companies are identified as subcontractor team members that will provide specified goods or services in support of the prime contractor. A somewhat less used but also acceptable alternative is for two or more firms to establish a new entity, or joint venture, to perform a potential contract, with each pre-existing firm contributing capital or other resources to the venture, and then jointly performing the work if a contract is awarded. Variations on each of these forms can also be employed.

This paper outlines some of the critical issues that the parties should take into consideration in drawing up a teaming agreement to contract with the Federal Government and is not a substitute for the advice of legal counsel.

 1. Teaming Arrangement Structure.

    a. The initial issue to be addressed is whether the teaming arrangement should be structured as a prime contractor-subcontractor arrangement or whether a joint venture should be established.

i.) Prime contractor-subcontractor.

• Advantages: Most firms are already familiar with prime-sub relationships, as opposed to joint venture teaming arrangements; provides a clear contractual chain of command; no need to establish, staff and account for a separate operational organization; may be the most suitable alternative where one party will have only a limited role; avoids the joint and several liability that attaches to a joint venture.

• Disadvantages: One party must be designated to take the lead role, with the other team member(s) assuming a subsidiary position; time and energy must be expended in reaching agreement on performance roles and details before the parties know that they will be awarded a Government contract; or at the very least care must be taken to ensure that the prime has a binding obligation to enter into a subcontract, and that the sub has a concomitant obligation to accept the subcontract.

 ii). Joint venture.

• Advantages: Presents appearance of added value to customer through combining the strengths of team members; encourages coordinated sharing of contractual responsibilities and decision-making by the parties, which should reduce chances of disagreements and internal administration problems; can foster improvements in a company’s own organization and technical abilities through working closely with other team member(s).

• Disadvantages: Generally necessitates the setting up of a new, separate entity for contract performance; the new business entity may no longer qualify as a small business, thereby becoming ineligible to compete for small business set asides; raises question of who is in control; resolving operational and legal issues may prove more difficult than in traditional prime contractor-subcontractor relationship where one party is clearly in charge; each member will be subject to joint and several liability for losses of or damages caused by the new entity. (Legally, a joint venture is an agreement between parties for a common business undertaking, involving joint (a) control, (b) property, (c) liability for losses, and (d) sharing of profits.)

     b. Variants on each of the above alternatives can be drawn up; but from a legal perspective the key in any teaming arrangement is to carefully circumscribe, if not avoid, the joint and several liability that attaches to a joint venture, subjecting each team member to liability for the obligations of any other team member (s).

    c. One other important structural matter should be decided at the outset, and that is the scope of the joint undertaking. Is the teaming arrangement to be limited to a single contract or project, as in usually the case, or is it envisioned that the arrangement will encompass other projects or purposes? The longer the duration of the arrangement and the broader its scope, the more likely it is to be deemed a joint venture, as well as to raise the antitrust issues outlined below.

    a. Once the threshold structural issues have been addressed, the parties must then define the specifics of the respective roles each will play to achieve their mutual objectives. To the maximum extent possible, the following major issues should be resolved prior to bidding for any contract or project.

• Pre-award effort: How do the parties plan to undertake their mutual marketing effort and prepare the joint contract proposal? What personnel or other resources are to be provided by each party to the pre-award effort? How are pre-award costs to be shared? Who is to represent the team in any discussions or negotiations with the Government, and with what authority?

• Contributions to the project: What financial contribution will each team member make to performing the contract once awarded? Will contributions other than financial also be required, e.g., personnel, office space, property or equipment?

• Project control: Who is to have ultimate control and responsibility for the contract or project? The day-to-day project manager? Supervisory representatives from each team member? Or some other governing body? How will control be exercised? What mechanisms are envisioned to avoid the possibility of deadlock?

• Administrative staffing: Who is to be designated to manage the contract or project? What personnel will each team member provide to support the effort? Is a separate, dedicated staff contemplated? Are assigned personnel expected to devote specified amounts of effort (e.g., stated hours or some % of time per day or other period) to the project?

• Performance responsibilities: What are the performance responsibilities of each party? How are they to be coordinated? How will the parties ensure that each team member is meeting contractual obligations regarding quality assurance, costs, delivery schedules and the like? Will team members be allowed to subcontract out any part of their respective responsibilities? What corrective measures do the parties envision if any member fails to perform satisfactorily? Are events of default and associated remedies to be spelled out?

• Profits/losses: How will any profits from the venture be shared among the parties? Will any losses be shared on the same basis? How are profits/losses to be measured, i.e., what costs are to be assigned or allocated to the joint effort in determining profits and losses? Who will be responsible for the accounting?

• Intellectual Property: How will the parties determine who owns the intellectual property or inventions? Will royalties be shared, or will intellectual property remain the property of the inventing party? Will licenses be granted?

• Non-disclosure Agreement: Will the parties provide for non-disclosure of proprietary data? What procedures will be necessary to handle the transfer of proprietary information? Will the parties limit the use of proprietary information?

• Disputes: How will the parties resolve any internal disputes that may arise. What state law will the parties choose to govern the agreement? Will each member designate some representative (s) to seek to resolve problems administratively? If such efforts are unavailing, what do the parties envision? Arbitration? Litigation? Other? How do the parties plan to handle any external legal disputes that may arise, e.g., with the Government or initiated by third parties such as vendors?

• Insurance and indemnification: Will the parties’ existing insurance cover their mutual undertaking? Will separate insurance or special coverage be required? Who will be responsible for obtaining such insurance, and how will the costs be shared? Have the parties contemplated indemnifying one another? What acts or claims are to be covered? Are any performance bonds or other guarantees required or desirable?

• Outside consultants: Do the parties foresee the need for using outside advisors, e.g., accountants, lawyers, technical experts? If so, who will have the authority to retain them? How will their fees and expenses be divided among the parties?

• Taxes: What provisions are to be made for the payment of taxes? Normally, federal, state and local income taxes are borne by the each party individually. What about real property taxes? Personal property taxes? Social Security taxes? Other taxes or levies?

• Duration of undertaking: When or upon what event (s) will the teaming arrangement terminate? The inclusion of appropriate termination provisions in the teaming agreement will help lessen the chance that it will be treated as a joint venture agreement or raise antitrust questions.

• Assignments: Will the parties provide that the agreement is not assignable or only assignable upon written consent?

    b. Additional operational issues to be addressed will depend upon the specific parties involved in the teaming arrangement, and upon the nature and complexity of the undertaking to be performed.

    a. Teaming parties, even when performing contracts with agencies of the Federal Government, are subject to antitrust laws. Indeed, because such arrangements can potentially involve restraints on competition, team members must be particularly sensitive to the following antitrust concerns.

• Agreements among competitors: Does creation of the teaming arrangement itself by these particular parties violate the antitrust laws? This could be the case where the arrangement involves either actual or potential competitors.

• Restraints on trade: Does the agreement between or among the teaming members impose restraints on their individual conduct contrary to the antitrust laws? Even if creation of the arrangement poses no antitrust problem, the agreement of the parties must not include unreasonable restrictions on the competitive behavior of members, e.g., prohibitions on the marketing of products or services.

• Spill-over issues: Is there the potential for communications between or among team members to "spill over" into areas where they are actual or potential competitors? The discussion or exchange of information should be limited to that which is necessary to accomplish the objective of the teaming agreement.

    b. Because the penalties are so harsh, involving potential criminal liability and treble damages, it is particularly important for the parties to consider the antitrust implications before entering into any teaming arrangement.

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  ¹Federal Acquisition Regulation 9.602(a), 48 C.F.R. § 9.602(a).  [Back to text.]

  ²FAR 9.602(c).  [Back to text.]

  ³W.J. Schafer Associates, Inc. v. Cordant, Inc., 254 Va. 514, 493 S.E.2d 512 (1997).  [Back to text.]

  ⁴Memorandum of the Undersecretary of Defense for Acquisition and Technology to the Secretaries of the Military Departments, Jan. 5, 1999.  [Back to text.]