Recently, a client inquired about forming a joint venture with another company to bid on government solicitations. While joint ventures are one vehicle, there is another option that is often less expensive and less risky: a teaming arrangement, which is memorialized in a Teaming Agreement.
Generally, teaming arrangements are organized so that one company is the prime contractor and one or more other companies are subcontractors. The prime contractor generally interfaces with the government. The prime contractor agrees in the Teaming Agreement that if awarded the government contract, it will use the subcontractor’s goods or services. Conversely, the subcontractor agrees that it will provide the goods and services at the cost proposed in the bid.
When entering into a teaming arrangement, it is vital that the Teaming Agreement cover important aspects of the parties’ relationship. Here, a look at some of the most critical:
Purpose. Generally, a teaming arrangement should be limited to a specific government solicitation and the Teaming Agreement should expressly address that the parties are “teaming” for that limited purpose.
Responsibilities. The Agreement should address the division of responsibilities between the parties in the preparation of the bid. Generally, the parties are responsible for their own costs, but nonetheless this should be addressed in the Teaming Agreement. The obligations of the parties should not be assignable as the companies are teaming because of the specific goods and services that each company provides.
Defining the relationship. The Teaming Agreement should clarify that the parties are independent contractors and their relationship should not be construed to be a joint venture, partnership, or any other affiliation. Likewise, the teaming relationship should be exclusive for the particular solicitation. Neither party should have the right to participate in another “team” or independently bid on the solicitation during the term of the Teaming Agreement or after its termination.
Termination. The Agreement should define the situations in which the Teaming Agreement will terminate, such as if the contract is awarded to the team, if the contract is awarded to another contractor, the government’s cancellation of the solicitation, or if the government determines that one of the parties is ineligible.
Limitation of liability and indemnification. The Teaming Agreement should contain indemnification for personal injury and damage to property as well as infringement of third-party intellectual property rights. Additionally, claims of lost revenues, lost profits, and other indirect damages may be excluded by a limitation of liability clause. However, in the event that a prime contractor does not award the subcontract, the subcontractor should be protected by adding that failure to award the subcontract would be an exception to the limitation of liability for lost profits.
Subcontract negotiations. The Teaming Agreement may also address the subcontract negotiations, including the amount of time the parties have to execute the subcontract.
Dispute resolution. Dispute resolution procedures should be addressed in detail, including whether the parties will mediate, arbitrate, or be subject to the jurisdiction of a particular court.
Confidentiality. Of particular importance is the protection of confidential and proprietary information. When teaming, the parties may share sensitive information regarding their pricing structure, goods, and services. The Teaming Agreement may contain a mutual confidentiality provision or the parties may enter into a separate Confidentiality and Non-Disclosure Agreement, in which case those confidentiality obligations should be referenced in the Teaming Agreement.
Intellectual property. The Teaming Agreement should address inventions, discoveries, and improvements conceived during the term of the teaming relationship. Typically, if inventions are developed by one party, that party will retain the rights to the invention; if developed jointly, the parties will have joint ownership.
Access to premises. If either party will be performing work at the other party’s premises during the teaming arrangement, the Teaming Agreement should set forth the specific rules governing that party’s access to the premises, and also provide for indemnification for personal injury or property loss.
Poorly drafted Teaming Agreements often are scrutinized in court for enforce-ability. As with all contracts, agreements to agree in the future are generally unenforceable. Therefore, the provisions of the Teaming Agreement cannot be vague or indefinite. The topic of enforce-ability of Teaming Agreements deserves its own separate treatment and will be discussed in a future article.
If you have any questions regarding a teaming arrangement or Teaming Agreements, please contact us.