The Basics of Teaming Agreements
A teaming agreement is a joint venture agreement. The purpose of teaming is to obtain an award of Government work that the Team Meeting Parties would not be able to receive independently. By using a teaming agreement, the Team Meeting Parties may combine their respective skills and capabilities to benefit from the Contract and work together to meet those procurement goals. In many instances, teaming agreements are used for competitive procurements where the parties may not able to develop a winning proposal absent a teaming agreement. For example, Teaming Agreements are often used when a small business is interested in competing for a DOD Government large business contract. In this situation , the small business must be considered a subcontractor and will require a relationship with a larger contractor to submit a proposal. The problem is that some small businesses are not interested in succeeding in small business contracts because they want the larger awards. In these situations the larger business can act as the Prime and the small business can receive a Letter of Commitment from the larger business. A Teaming Agreement allows both businesses access to the procurement and negotiations between the contractors on best pricing and best approach maybe possible.
Essential Components of a Teaming Agreement
By its very nature, a teaming agreement is just that — an agreement. Therefore, the parties are at liberty to include any terms they find appropriate to their own needs. Of course, there are certain terms that are common to many teaming agreements and it is helpful for the parties to at least be aware of them.
Government contracts typically include a requirement for various clauses that must or may be incorporated into subcontracts. While many of these clauses do not seem applicable at first blush to a teaming agreement, there are some that can usefully be included. For instance, there is a government clause that requires a prime contractor to extend the protections granted to it by the government in the event another party claiming that it was improperly excluded from some award; or clauses requiring that subcontracts follow certain rules regarding use of government property. By making the choice early on, the parties can avoid having to go back and negotiate changes to their teaming agreement later.
The agreement should set out the roles and responsibilities of the parties. For instance, who will be the prime, the SoPac or the sub? What obligations will each party have for performance under the contract? Will one party be responsible for a portion of the performance of the entire contract or just a specific task? It is especially important to address these questions when the work will be divided into sections that will be performed by different parties, but under the same government contract or task order. In that case, it is critically important that the sub understand that it is only as liable as the area it is assigned to. This typically requires that the parties negotiate what damages each can recoup for failure of another’s assigned work.
The financial arrangement between the parties is also critical to the overall teaming agreement. What sharing arrangements will each have? Many teaming agreements simply provide that the parties must share other expenses such as insurance, bonding and performance guarantees. However, the financial arrangements of the parties can be many and varied. Whatever the arrangement will be, it is important to state the financial obligation up front so that the parties are clear until the actual work begins.
Benefits of Teaming Agreements
The use of a teaming agreement is likely to create a synergy among those who have executed it. Contracting with another party lessens the burden of having to do everything that is necessary by yourself. Partnerships enhance capabilities, just to name a few advantages.
Entering into a teaming agreement provides some degree of competition to generate more innovative ideas and helps to focus scarce resources on those things that are central to a business. The parties should establish and agree to a non-competitive approach in the teaming agreement as they move toward securing the federal contract.
Competition and contestable behavior between the teaming partners become possible when a teaming agreement is in place. The parties to the teaming arrangement do not compete against each other. They are part of an effective team that allows for competitive bids to be submitted because each member will receive a fair amount of remuneration when a government contract is secured.
Teaming agreements reduce the risk encountered in doing business with the federal government. The risks are reduced or shared, in that the obligations are split among the parties to the teaming agreement. The teaming agreement sets forth obligations, which are enforceable against the parties in their respective roles.
The skills of the teaming partners give a strategic advantage to the new entity that will emerge from a teaming agreement. Each party adds their own unique expertise, which creates a winning combination. Teaming partners should seek to maintain their uniqueness to the extent possible.
A strong competitive advantage emanates from a good teaming agreement. The difference in capability plus the ingenuity of each party equals a winning match. An individual contractor repeatedly will be at a disadvantage when compared with the totality of the skills of teaming partners.
Pricing can be improved through a teaming agreement. Teaming partners have the clout to lower costs, in order to stay in business. A great teaming partner may agree to offer pricing below market price. Alternatively, they may agree to divide overhead costs. This savings benefits the overall success of the venture.
Common Issues and Risks
The ambiguity in defining roles and responsibilities can lead to future disputes over performance and accountability. Clearly defining roles in a teaming agreement is a must, but parties should also have a mechanism in place to address areas of conflict as they arise. These types of conflict resolution provisions may include a step process that includes senior executive management meetings, followed by mediation, and, then, arbitration if the process fails to resolve the conflict at the CEO or other senior management level. A simple way to attempt to avoid conflict associated with intellectual capital is to clearly delineate the intellectual rights of each parties, such as whether certain experience and identified solutions will be shared by all parties and whether there will be any restrictions against sharing such ideas if a teaming partner decides to fly solo on the project. Conflicts of interest are potentially one of the biggest threats to a teaming arrangement because of the potential for a "squeezing out" as the competition is upped among the parties to the teaming agreement. A teaming arrangement that allows for separate contract negotiations or that sets obligations of two or more members to pursue a contract that is awarded to one member creates the potential for significant conflict and disagreement among the parties. To address this dynamic, contracting partners should consider exclusive teaming arrangements with a defined scope of work, as well as the specific nature and duration of cooperation among the parties. One of the main obstacles in teaming arrangements is the potential personality clash among the parties. Teaming agreement partners should be working towards the same goal in order to be most effective. Future conflicts that could arise among the parties may be avoided through the process of vetting team members for compatibility. There should be a mutual understanding about the type of team each contracting partner anticipates. If the contracting partners do not see eye to eye, it may be best to find another teaming partner that better suits the desired arrangements and goals. One way to identify and minimize coordination risks is to name a team member as a program manager or facilitator. To be most effective, the program manager will need to be impartial among the team members and work toward the common goals of the contracting partners. The program manager will be responsible for tasks such as developing an overall strategy, allocating roles, and ensuring that all members are working towards the common goals of the team. Conflicts also may arise in the allocation and payment of resources towards the teaming effort. While the division of labor among team members may be clear, the division in the contribution of resources may be less so. In this scenario, one party may contribute more human resources while another provides more financial support towards the contract. Parties may seek to avoid this issue by limiting the amount of their participation to a certain number of hours or financial contribution parameters.
Teaming Agreements vs Joint Ventures
Before we delve into the terms used, we need to grasp the differences between teaming agreements and joint ventures. The difference is often described in the context of "agency." In that context, a joint venture can be described as a form of non-agency relationship and teaming agreements as a form of agency relationship. However, that is not the heart of the distinction. In truth, there is no good legal reason for one to use one form of relationship over another.
The real differences turn on risk allocation, tax and intellectual property considerations (and financing and financial structuring) . There are other factors that can be described as differences, but they do not have much legal significance for a teaming agreement. Therefore, those other differences will not be discussed here.
Usually, the contract terms in a teaming agreement and joint venture are similar. The real differences are found in the structuring of the parties’ relationships. In a teaming agreement the team members have a way to shift the allocation of risk and cost burden between the parties. This is because teaming agreements provide a more or less comprehensive set of team arrangements that the team members may be able to use during their execution of the contract with the contracting agency or prime contractor.
Legal Aspects of Teaming Agreements
A simplified explanation on teaming agreements’ legal considerations
The basic principles of contract law apply to teaming agreements, so it is important for businesses to ensure that their intended outcomes are reflected in a formal written document. Questions of choice of law, enforcement and interpretation will be determined by the general body of contract law that governs the contractual relationship into which the parties have entered.
Parties need to be aware that teaming arrangements may create conflicts between competitors once they become operational. For example, if one party is unable to perform under the agreement it can cause problems for the group as a whole. Similarly, if the parties proceed in such a way as could attract scrutiny by the Australian Competition and Consumer Commission (ACCC), the agreement may be in breach of part IV of the Competition and Consumer Act 2010 (Cth).
To assist with avoiding the compliance risks and obligations originating from teaming agreements, businesses should structure the teaming arrangements to fall within the legal safe harbours and exemptions under the Competition and Consumer Act 2010. These include exemptions relating to standard form contracts, small business contracts and territorial restrictions.
It is also important to remember that some teaming agreements may be subject to the Defence Industrial Capability Plan Policy 2017-2022. The policy seeks to promote innovation and lower industry compliance costs by facilitating contractual arrangements that support industry investment in intellectual property, technology and Research and Development.
Drafting a Successful Teaming Agreement
When drafting a teaming agreement, the process begins with the translation of the strategic objectives of the partners into clear contracting requirements that ensure a realistic and legally sound risk allocation procedure. This can be accomplished by a roadmap that starts with the definition of the teaming agreement structure itself, which would include an assessment of the types of agreements that meet the strategic objectives of the team, such as a strategic alliance agreement, a federal teaming agreement, a non-disclosure agreement, a joint venture agreement, a partnership agreement, or even a simple consultant agreement. Once the type of teaming agreement is determined, the process moves into assessing the interests of the teaming partners for the following key issues: (1) protecting the business interests of the teaming partners , (2) a description of the scope of work to be performed by each member of the team, (3) how teaming agreement partners will divide obligations in each task order, (4) how teaming partners will share profit and loss, (5) how teaming partners will manage and align resources, (6) how teaming partners will divide and share in respect to intellectual property, (7) how teaming partners will resolve conflicts, (8) what teaming partners will do to protect sensitive information, (9) what teaming partners will do in the event the teaming agreement ends, and (10) how teaming partners will develop a general process for tracking and managing performance. A teaming agreement must be a comprehensive document that clearly describes the terms and conditions of the teaming relationship in order to ensure that the teaming partners have a common understanding of the rules of engagement to avoid costly disputes.