Five teaming agreement pitfalls, and how to avoid them

Teaming arrangements let contractors combine capabilities to compete for work neither could win alone, and FAR Subpart 9.6 expressly recognizes them. They are usually negotiated in days, while a proposal is being written. That speed is where most problems start. These five issues come up again and again.

1. An “agreement to agree” that no court will enforce

Many teaming agreements promise that the prime will award a subcontract after award, with terms to be negotiated later. Courts in several jurisdictions, including Virginia in Cyberlock Consulting v. Information Experts, have refused to enforce that promise as an unenforceable agreement to agree. If the subcontract matters to you, attach the key terms now: statement of work, pricing approach, period of performance and the conditions under which the prime may decline to award.

2. A workshare that is not defined

“A meaningful share of the work” is not a workshare. Define it by labor categories, functional areas or a percentage of contract value, and say how it adjusts if the government changes the scope. A vague workshare leads to disputes in the first option year.

3. Limitations on subcontracting

For small business set-asides, the prime must comply with the limitations on subcontracting (FAR 52.219-14; 13 C.F.R. § 125.6). For services, the prime may not pay more than 50 percent of the amount it receives to subcontractors that are not similarly situated. A workshare promise that violates the limit cannot be kept, and the violation can lead to penalties and False Claims Act exposure. Build the limit into the workshare and require each party to report the data needed to track it.

4. Ostensible subcontractor affiliation

If a large subcontractor will perform the primary and vital requirements of a set-aside contract, or the small prime is unusually reliant on it, SBA may treat the two as affiliated. The prime can then lose its size status for the award (13 C.F.R. § 121.103(h)). The agreement and the proposal should show that the prime manages the contract and performs the core work. When the partner is a similarly situated small business, or the team is a joint venture or a mentor-protégé arrangement, different rules apply.

5. Exclusivity and exit terms

Exclusivity clauses keep a partner from teaming with competitors, but broad or long-lasting exclusivity can raise antitrust concerns. Employee non-solicitation clauses get similar scrutiny. Limit exclusivity to the specific opportunity. Then say what ends the agreement: loss of the competition, cancellation, a set-aside change, a size or eligibility problem, or a failure to agree on subcontract terms within a stated time.

A short checklist

• Is the subcontract award a firm commitment, and are its key terms attached?
• Is the workshare measurable, and does it meet the limitations on subcontracting?
• Does the proposal show that the prime performs the primary and vital work?
• Are proprietary information, IP and data rights addressed separately for the proposal and for performance?
• Is exclusivity tied to one opportunity, and does the agreement end on clear events?

We draft and negotiate teaming agreements, subcontracts and joint ventures, and we review them before you sign under deadline pressure.

This article is general information, not legal advice.