Does your business ever join forces with others to go after government contracts? If you do, you should execute a teaming agreement to cover just how you will combine your resources. It’s a smart tactic for a smaller company that wants to obtain access to business that would otherwise be beyond its reach or capacity. If you are the larger of the two contractors, you may be attracted to a teaming arrangement to achieve greater control over costs and more certainty through a pre-bid teaming agreement.But be prepared. Not all teaming agreement arrangements end amicably. Just ask Advance Telecom Process, a certified Small Disadvantaged Business 8(a) Contractor, which entered into a teaming agreement with DSFederal, Inc. When DSFederal terminated the agreement, Advance filed suit claiming that the termination was unlawful. The Maryland Court of Special Appeals dismissed the case, on the principle that the teaming agreement was nothing more than an “agreement to agree,” rather than a valid contract. The Court zeroed in on a provision stating that if a contract was awarded to DSFederal, the parties would negotiate in good faith a subcontract agreement. This provision, along with a provision stating that the client’s approval of the subcontract may be required, sounded the death knell for Advance. Because the parties left material terms open for future negotiation, there was no agreement requiring DSF to issue the subcontract to Advance.With a bit of guidance and forethought, the result for Advance could have been different. Properly drafted, your teaming agreement should reinforce the concept of “team,” and leave no doubt as to the true intent of the parties. Here are five suggestions which if properly implemented can help you avoid the issues that tripped up Advance.
1. Define why the whole is greater than the sum of its parts.
An effective teaming agreement should identify and emphasize the respective strengths of the teaming parties. It should demonstrate that the parties intended to pursue the resulting contract as a collective effort – rather than the individual effort by either contractor. It should be clear that the parties are teaming because each believes the other brings something to the table it is unable or unwilling to duplicate. By touting the respective skills and experience the parties will provide, it is less likely that the teaming agreement will be considered an agreement to agree, and far more likely that the parties’ complementary strengths form the basis of a relationship designed to result in a subcontract.
2. Work to stay together.
Your agreement should avoid language providing for “good faith efforts” to negotiate the resulting subcontract. Instead, the parties should agree on positive language making it clear that upon the award of the subject contract, the parties will enter into a subcontract. At the same time, the parties should avoid the word “negotiate” as it lends itself to a finding of an “agreement to agree.” And you should anticipate disagreements with a provision for mediation to resolve the disputes, or an agreement to choose a third party to resolve anything material.
3. Participate meaningfully in the proposal.
Often, the party that is intended to be the prime contractor takes the lead on responding to the RFP, while the intended subcontractor sits on the sidelines. The better approach is to have the subcontractor play an active role in submitting the proposal. That way, the would-be subcontractor reinforces the idea that it is a crucial part of the proposal and that a subcontract is the ultimate goal of the parties.
4. Make it exclusive.
Parties to a teaming agreement can further eliminate doubt by agreeing to exclusivity. In effect, the parties are promising to each other that they intend to only work with the other to pursue the subject contract. Exclusivity reinforces the idea that neither team member will look elsewhere in pursuit of the contract.
5. Create a joint venture.
While it is a more complex and expensive option, creating a joint venture erases all doubt as to the intent of the parties by ensuring that to the extent the contract is awarded, it will be awarded to the joint venture. Obviously, the terms of the joint venture agreement are extremely important, but the moral of the story here is that the problems encountered by Advance Telecom Process would have been virtually eliminated with a joint venture agreement in place.
Planning and foresight make all the difference.
Taking the steps we recommend can make your teaming effort more comfortable and secure from beginning to end. It can also spare you the potential hassle and expense of litigation while at the same time providing a measure of comfort and confidence. If you have any questions about teaming agreements, other business combinations, or any other matter, please contact me by phone or e-mail, or reach out to any of our experienced business attorneys. We would be happy to assist you.
