This article has been written by Shristi Roongta, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
You want to bid on a tender, but require third-party help? There comes the rescuer embodied as teaming agreements. Basically, a teaming agreement helps the parties who want to come together and bid for a project. Therefore, if you want to bid on a tender but require someone to team up with you, enter into a teaming agreement. It is usual for contractors especially to compete under teaming agreements for government contracts. This happens because teaming agreements permit companies to compete for government contracts that they might not be able to obtain and perform exclusively. This is an exhaustive article that covers all the questions relating to teaming agreements and also why it is different from other types of agreements.
What is a teaming agreement?
In simple terms, a teaming agreement can be defined as an agreement between two or more parties to form a team to bid together for a project. It is a contract entered into by two or more companies who combine their expertise, their resources, and also the skills to bid together on important work or contract for a particular project. Example- X and Y want to bid on a tender, ABC but both of them lack the capacity to bid individually. Therefore, they decided to become a team and bid on the tender together. For this purpose, they entered into an agreement, known as teaming agreement.
Teaming agreement is a commercial agreement that records who will become the prime and subcontractor. For example, A and B have entered into a teaming agreement. Both acting as a team successfully bid a tender, now it shall be decided that who, A or B, will become a prime contractor and the other shall be appointed as a subcontractor. A prime contractor is a person or the firm who is the primary contractor in a project; he shall be responsible for the entire project. A subcontractor is a person or firm hired by a prime contractor to complete certain tasks. He also works under an agreement and when his project is completed, he set off to the next project. Types of company benefited from teaming agreements:
- A company, which is too small to bid on a specific contract.
- That does not have the capacity to hold a project on its own.
- Not eligible to submit a proposal or an offer for a contract.
- A company that has a direct contractual relationship with a prospect.
- A company that has a previous history made them ineligible to bid on any agreement directly.
It is defined by Practical Law, “A standard document for a teaming agreement between two parties who wish to work together on the preparation and submission of a tender on the basis that, if the tender is successful, one party will act as the main contractor and will appoint the other as a subcontractor”. Therefore, it can be said that with the help of teaming structure, the parties can share the financial risk of a contract by sharing or combining resources, skills, and also know-how.
Who is a teaming partner?
A teaming partner is referred to as a party that enters into a teaming agreement. They are also referred to as “partners” because the parties, who enter into a teaming agreement, collaborate with each other to deliver a product or a service.
Types of contracts on which the teaming agreements can be formed
In construction work, the teaming agreement is known as teaming arrangement. It is an agreement entered between two or more independent companies for combining their resources, abilities, and knowledge for the purpose of obtaining and performing a competitive bid construction contract.
- Software project- teaming agreement in software project provides a clear definition of roles from the beginning of a project enabling teams of experts to work together for achieving a common goal.
- Government contract- the government contractors enter into a teaming agreement to secure the contracts with the partners that helps them to win and perform the work.
- Information technology contract- in an information technology contract, a teaming agreement helps a company to team up with another company to provide a divisible service to a third party.
The necessity of teaming agreements
By entering into a teaming agreement, the prime contractor enhances the competitive posture by teaming up with the companies that are able to provide services that it might not be able to offer. Even if they have the capabilities to perform the work, a lack of experience in the past makes it necessary to have a team. On the other hand, if they have the ability to enter into a teaming agreement to establish a new relationship with a new client, as it is not eligible to bid on the tender. Considering these among others, what generally drives companies into teaming agreements.
Pros and cons
Entering into a teaming agreement has various benefits to companies or firms who are looking to increase their competitive value in the market. However, everything has pros and cons as well, it is applicable to teaming agreements also. There are both advantages and disadvantages of having teaming agreements.
- The parties contracting to teaming agreements have limited contract obligations as they are not entering into a joint venture, partnership, or merger.
- Teaming agreement increases the chance of the parties winning the bid.
- The parties have the option to negotiate particularly a teaming agreement for the needs of a client, for a specific tender.
- The partners are able to provide better proposals due to the combining of skills and capabilities of the team members, in comparison with if they had proceeded without any third party help or competed against them for a tender.
All the points mentioned above may look attractive to enter into a teaming agreement or partner with a business to win a project. However, due diligence must be done before entering into any business relations.
- The partners may not agree on the terms of their rights and obligation.
- The prime contractor as intended initially to subcontractor elements after winning the tender, may not do so.
- Prime contract is the only partner with the privity of contract with the client and the subcontractor will not have the same option.
- Possibility of not agreeing on the subcontractor’s terms by the subcontractor.
How can a businessman enter into a teaming agreement?
The procedure of teaming agreement is direct and it involves the following:
- Finding a tender or a contract that is suitable for the business to bid on, when the bidder knows the option of teaming agreement, the range of the tenders can be extended to bid on.
- After the identification of the tender and the specifications, the second thing is to identify the tender partner, if any, who shall be right for the business to team up within the bid.
- Get the commercial lawyer to draft a teaming agreement for approval and after the approval, it is to be executed.
- If the bid is successful, the next thing is to get a prime contractor and a subcontractor to maximize the prospects of the tender or the project work to run it smoothly and to manage the expectations and the reduction of the risks of consequences leading to the commercial lawyer.
The bullets below provide a simplified form of the above discussion:
- Identify the tender partner
- Get a lawyer
- Prime contract and subcontractor
Why enter into a teaming agreement and not in a partnership agreement?
If two persons or companies are working on a bid then it is a long way from the long-term nature of the business partnership with all the legitimate and accounting issues that stream from a formal business partnership. The teaming agreement falls away to be replaced with a prime contract and subcontract once the bid process is ending. Therefore, a teaming agreement is the best option for the business since it ensures that the business has the advantage of the tender bid partner however without any legal commitment or any complexities arising from a partnership agreement.
It is important to ensure while drafting a teaming agreement that the contractual obligations are drafted in a manner that it is enforceable by the court. The courts in some jurisdictions intended that a contractual obligation to agree on a future agreement is unenforceable and vague. Therefore, an agreement to “agree in the future” is not certainly enforceable. A teaming agreement is subjected to enforceability challenges, a lawyer or legal professional can draft a teaming agreement template and includes terms and conditions that enable odds of enforceability that are better.
In order to ensure that the obligations are enforceable to be entered into a future agreement, the parties may want to:
- Agree on the type of agreement they may want to enter into
- The scope of the work defined are contemplating to agree upon
- The proposed financial term of the contract is outlined
- The duration of the agreement
In the case of Cyberlock Consulting Inc. v. Info. Experts, Inc., the US District Court for the Eastern District of Virginia held that a teaming agreement that was entered between two government contracts is unenforceable under Virginia law and confirmed that other state and federal courts have decided regarding such agreements.
In the recent case of Fifth Circuit in X technologies, Inc. v. Marvin Test Sys., Inc. it was held that exclusivity agreements in teaming agreements are enforceable for recovering damages.
Teaming agreement vs teaming arrangement
A teaming agreement is an agreement for one time for a particular tender, bid, or client solicitation. The teaming arrangement is when two or more businesses create a structure or make arrangements for having a more extensive organization with regards to how they bid for a project or tender. For an arrangement, the parties may have the option to choose to form jointly a legal entity or create a legal structure where the parties can use the same setup for a long-term basis and in a repeatable manner.
Teaming agreement vs subcontract agreement
A teaming agreement is entered into between two parties where the parties agree to bid on a project together with agreed terms of the tender. It represents an agreement between the parties to bid on a project, respond to RFP, submit a proposal for the award of a project and also manage in case the contract is awarded.
On the other hand, a subcontract agreement is an agreement, a prime contractor enters with a subcontractor for a specified task or contract. The prime contractor is heretofore in a legally binding contract with a client and subcontracts parts of the contractual obligations to a subcontractor. Usually, the prime contractor has full responsibility for its contractual obligations including the subcontractor and his actions and omissions.
The main point of difference is that teaming agreements are entered into a subcontractor agreement for a futures contract and a subcontract agreement is entered into for an actual project with specific obligations and requirements.
Teaming agreement vs joint venture agreement
People tend to confuse teaming agreements and joint ventures. Both of these are different and have major differences. The main point of difference is teaming agreement identifies the relationship between the prime contractor and the subcontractor; it also discusses their roles to the government during the bid and evaluation process. On the other hand, in joint ventures, the business is looked at as an official offeror for the purpose of evaluation.
The teaming agreement is set up for the purpose of bidding on a tender and the agency is made aware of the team earlier to the source selection process. Therefore, the teaming agreement can be submitted as a part of the bid itself. Compared with joint ventures, it is when two companies form a third joint venture. If the structure is formed correctly then it shall be eligible to compete as a small business.
The flexibility of a teaming agreement
Generally, a teaming agreement specifies the aims and objectives and includes a plan that allocates the work between them for ensuring a successful tender. It is flexible depending upon the resources for a limited purpose. The teaming agreement shall be set out in:
- The invitation to bid and the main contract between the business that offers the tender and the successful bidder.
- The subcontract between the prime contractor and the subcontractor. The subcontractor shall define the post-bid relationship of the parties to the teaming agreement.
Essential clauses in a teaming agreement
- Parties to contract– any agreement should identify the parties to the contract and in the teaming agreement who would be the prime contractor and subcontractor to successfully bid the tender.
- Confidentiality clause– businesses entering into a teaming agreement mostly want to keep their arrangements confidential. This can be accomplished by a confidentiality clause. It is essential to draft a confidentiality clause properly along with addressing the confidentiality issue so that any business information does not get exposed.
- Exclusivity clause– in a teaming agreement, it usually happens that the parties to the agreements promise to undertake the work exclusively with one another right from preparation to submission of the work. In case the bid is successful then the teaming agreement parties shall have to enter into a legal relationship as prime contractor and a subcontractor.
What happens if there is no exclusivity clause in a teaming agreement? In case there is no exclusivity clause then both the parties are at a risk that the other party could bring a third party other than the ones entered into the agreement either to work on the same tender or on to another tender.
Let’s understand with an example, X and Y entered into a teaming agreement for bidding on a project. However, they did not include the exclusivity clause in the agreement. Now, both X and Y are under a risk that either Y or X will bring a third party, Z for the work of the project or either of them will work with Z on a new project. Therefore, to avoid such a situation, an exclusivity clause is needed in a teaming agreement to binding the contracting parties.
Intellectual property– Intellectual property is important if the parties to the teaming agreement will create any intellectual property as a part of the bid procedure. This clause usually states that the parties agree that they own intellectual property rights in the materials they have created earlier to the teaming agreement. They also agree that either they own any intellectual property that is created during the teaming agreement jointly or one owns the rights of IP.
5. Liability clause– This is an important clause in a teaming agreement. Generally, teaming agreements provide for mutuality of obligations, not always applicable. In mutuality of obligations, either party could be liable to the other for engaging in competing for bids or breach of the confidentiality or the unpermitted solicitation of the other party’s employees, or the losses incurred by the second party for third party’s intellectual property infringement. In teaming agreements, each party has full responsibility for its contents, that the contents of its section of the bid is accurate. In simple terms, it means that neither party shall be liable to the other party if the tender is not successful.
6. Indemnification clause- The agreement should contain an indemnification clause for personal injury and damage caused to property and also any infringement of third-party intellectual property rights.
7. Subcontractor negotiation– This clause must be included as the teaming agreement may address the negotiations by subcontractors including the amount of time the parties have to execute the subcontract.
8. Termination clause– A termination clause in a teaming agreement is very much important to set out the circumstances when the teaming agreement will end. The parties can terminate the agreement by giving a notice of termination.
9. Dispute resolution– This is an important clause in a teaming agreement. In case there is a dispute between the contracting parties that can be resolved through this clause. The laws of which jurisdiction shall govern the agreement and any mandatory pre-filing dispute resolution practices such as mediation or arbitration, these shall be included in the agreement.
Teaming agreements play an important role in bidding for a tender for the parties. As discussed above, it has several advantages and disadvantages, however, at the same time, it is important for the companies to enter into a teaming agreement for having a better bid and enhancing the chances as well. Also, a teaming agreement should never be drafted poorly because often it is scrutinized in the court for enforceability and generally, all agreements to agree in the future are unenforceable. Hence, the provisions of this agreement should not be vague and indefinite.
- https://www.pilieromazza.com/teaming-agreements-are-they-necessary-or-not-worth-the-effort/#:~:text=Government%20 contractors%20enter%20into%20 teaming,win%20and%20perform%20the%20work.&text=Prime%20 contractors%20enter%20into%20 teaming,not%20be%20able%20to%20offer.
- https://cmmllp.com/roadmap-valuable-teaming-agreement/#:~:text=The%20Teaming%20Agreement%20should%20 contain,a%20 limitation%20of%20liability%20clause.
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