Often, two or more companies will decide that it is advantageous to combine their resources to bid for a particular government contract. Typically, this involves a large corporation and one or more small businesses joining forces, with the large corporation acting as the prime contractor to the government and the smaller company or companies serving as subcontractors to the prime contractor. Such arrangements are called teaming agreements.

A teaming agreement is defined by the Defense Contract Audit Agency as:

"An arrangement between two or more companies, either as a partnership or joint venture, to perform on a specific contract. The team itself may be designated to act as the prime contractor; or one of the team members may be designated to act as the prime contractor, and the other member(s) designated to act as subcontractors."

Such arrangements are recognized by the federal government, and are even encouraged because they help the government receive better, more complete proposals and bids.

Large companies may choose to form teaming agreements with small businesses for a variety of reasons:

• The small business may possess unique capabilities that will provide an edge in a competitive bid process.
• The prime contractor may need to demonstrate a specific small business subcontracting plan to meet the requirements of the solicitation.
• The small business may be able to offer the best technical solution or the lowest cost on certain portions of the proposed work.
• The small business may have existing relationships with the agency in question - relationships that the large business does not have.
• The large business may simply need competitive price quotes or information about how best to address requirements in a solicitation.

Small businesses may seek some of these same advantages by teaming with a larger company, but there are often other potential benefits to the small business:

• The opportunity to participate on bids that otherwise would be beyond its capabilities.
• The prestige of working with a large, well-known company or on a high-profile government contract.
• New opportunities that may arise from the knowledge and experience gained by teaming with a larger company.

Whatever the objectives, teaming with a larger company can open new opportunities for small businesses to grow. Unfortunately, however, some small businesses do not experience the benefits they anticipated when they entered a teaming agreement.

While problems can manifest themselves in many ways, perhaps the most common scenario is when the prime contractor in a teaming agreement wins the solicitation, but fails to award the small business team member the subcontract. The small business entered the teaming agreement (and expended the time, cost and effort to prepare the solicitation) with the expectation that it would receive a portion of the work if the bid resulted in a contract award. When the subcontract fails to materialize, the small business may be left with nothing but dashed hopes and an expensive lesson.

The major reason small businesses are disappointed is a poorly-drafted teaming agreement. Larger companies with more experience in these matters can often outmaneuver small companies if they choose to do so. In rare instances, a prime contractor may even enter teaming agreements with no intention of actually awarding work to the small business.

The best way to prevent such scenarios is to make sure that the teaming agreement contains provisions that protect your interests as a subcontractor and team member, and that the teaming agreement itself is an enforceable contract. Here are some tips that may help you avoid potential pitfalls*:

• Select an attorney with experience in representing small businesses in government contracting matters to draft or review the teaming agreement. Never sign a teaming agreement unless it has been reviewed by an attorney that you have hired.
• Make sure you have an advance confidentiality agreement (non-disclosure agreement) in place before entering any negotiations that require you to release any proprietary information to the other party. The advance confidentiality agreement should contain enforceable provisions for liquidated damages (monetary payment) in the event that either party breaches the agreement.
• Include provisions in the teaming agreement that make the agreement enforceable. Courts will generally not enforce "gratuitous promises." For example, the agreement may simply state, in effect, that the prime contractor will award a subcontract to you if it wins the solicitation. If the agreement makes no provisions for the terms of the subcontract or penalties for not making the subcontract, the agreement might not be enforceable.
• Make sure the teaming agreement is more than just an "agreement to agree." It should be as specific as possible about the scope of the work to be subcontracted, how prices will be set, and when the subcontract will be awarded in the event of a successful bid. Include a provision that obligates the parties to negotiate a subcontract "in good faith."
• Include provisions that specify under what circumstances the teaming agreement may be terminated.
• Choose your teaming partner carefully. Make sure that they have a genuine interest in you as a subcontractor, and not just as one more element in making their bid look good. Verify that there is executive-level commitment to your company, and that your corporate cultures are compatible.
• Remember that even if your company is included in the proposal, your agreement is with the prime contractor, not the government. Do not expect the government to act as a mediator or to direct the prime contractor to award the subcontract to you.
• Keep in mind that a teaming agreement is not a subcontract. A subcontract must be negotiated and awarded following the successful completion of the bid process.
• Be aware that language in the subcontract may supersede or nullify obligations that the prime contractor has undertaken in the teaming agreement. If the prime contractor fulfills its obligations under the teaming agreement by negotiating a subcontract with you, the subcontract would be the operable agreement, and its wording may allow for termination for the convenience of the prime contractor. Make sure that any protections you have negotiated for yourself in the teaming agreement survive after the award of a subcontract, preferably for the duration of the prime contract.
  

* Note: The information contained here is not intended to provide legal or professional advice or substitute for the advice of an attorney. Neither the publisher (Braddock Communications, Inc.) nor its sponsors and advertisers are engaged in rendering legal, accounting or other professional advice. You should consult a qualified attorney to obtain legal advice.

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