What is a teaming agreement?
What are the advantages and disadvantages of teaming contracts?
Is it enforceable?
In this article, we will break down the notion of “teaming agreement” so you know all there is to know about it!
We will look at what is a teaming agreement, its definition, its pros and cons, see if they are enforceable in law, look at what terms and conditions you should have in a sample teaming agreement pr template, compare it with a teaming arrangement and subcontractor agreement and more!
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What is a teaming agreement
A teaming agreement is a type of arrangement between two or more companies who combine their expertise, resources and skills to bid on an important contract or work on a particular project.
This type of arrangement works quite well for companies who:
- Are too small to bid on a particular contract
- Do not have the capacity to handle a project on their own
- Do not qualify to submit a proposal for a contract
- Do not have a direct contractual relationship with a prospect
- Have a past history making them ineligible to bid on a contract directly
Teaming agreements allow businesses to complement one another’s capabilities and potentially reduce their cost of performance or delivery timelines.
Teaming agreements are found in many different types of contracts such as:
- Construction contract
- Government contract
- Software development contract
- Project implementation contract
- Information technology contracts
In the United States, teaming arrangements are particularly used in the award of government contracts.
Under the Federal Acquisition Regulation (FAR), Subpart 9.6, Contractor Team Arrangements are defined as:
(1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.
In essence, a teaming arrangement under FAR includes:
- Partnerships acting as a prime contractor with the government
- Joint venture acting as a prime contractor with the government
- Any company acting as a prime contractor with one or more subcontractors
The objective of a FAR teaming arrangement or any other teaming agreement is to better respond to client solicitations, provide more competitive offerings, deliver products and services that a business could not have offered alone.
When businesses form a legal entity or enter into a partnership, we consider that to be a “teaming arrangement” whereas when the business partners into a one-time agreement, we’ll refer to that as a “teaming agreement”.
Teaming agreement definition
According to US Legal, a teaming agreement is defined as:
A teaming agreement involves two or more companies combining resources to bid on a government contract.
According to Practical Law, a teaming contract is defined as:
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.
In essence, you can define teaming agreement as an agreement entered into between two or more parties bidding on a project or contract where one will act as a prime contractor and the others as subcontractors if the contract is awarded.
With a teaming structure, the parties can share the legal and financial risk of a contract by sharing or combining resources, skills and know-how.
Teaming agreement pros and cons
Entering into a teaming contract offers several key benefits to organizations looking to increase their competitiveness in the market.
However, it also comes with some drawbacks.
Let’s discuss the advantages and disadvantages to understand teaming agreements better.
Businesses and organizations contemplating teaming contracts or entering into a teaming relationship intend to capitalize on key advantages such as:
- The contracting parties limit their contractual obligations to what they are good at
- Teaming partners share the financial risk of a project or contract
- Teaming contractors are able to penetrate new markets
- Teaming companies are able to build relationships with new clients
- Contracting parties can increase their chance of winning a bid or contract
- The parties can limit their liability to what was agreed in the teaming contract
- The parties can negotiate a teaming agreement specifically for the needs of a particular client, for a specific bid or project
Even though it may be attractive to enter into a teaming contract or partner with another business to win a contract or deal, you must do your due diligence just like any other business relationship.
Team agreements do have important drawbacks that you should be aware of:
- Typically, one party in the teaming agreement will win the bid with the end client
- The teaming partners may not agree on the terms of their rights and obligations
- The prime contractor winning the deal may not subcontract elements of the prime contract to the teaming partner as initially intended
- The prime contractor is the only party with the privity of contract with the client whereas the subcontractor will not
- The parties may not agree to collaborate in case the scope of the project or contract changes
- The prime contractor may make unexpected legal commitments that put the other partner at risk
- Teaming contracts typically apply to one solicitation which means that any future requirements will need to be renegotiated
Teaming agreement vs subcontract agreement
In essence, a teaming agreement is an agreement entered into between two or more parties where:
- The parties agree to tender on a contract or project jointly
- They agree that if the contract is awarded, one party will be the prime contractor and the other party a subcontractor
- The parties agree on the terms of the tender
- The parties agree that if the contract is awarded, they will enter into a subcontractor agreement
In fact, a teaming agreement represents an agreement between the parties to bid on a contract, respond to an RFP, submit a proposal for the award of a contract and manage what happens if the contract is awarded.
On the other hand, a subcontractor agreement is a contract between a prime contractor and a subcontractor for a defined project, service or task.
In the context of a subcontractor agreement, the prime contractor is already in a legally binding contract with a client and delegates or subcontracts parts of the contractual obligations to a subcontractor.
Generally, the prime contractor is responsible for its contractual obligations, including its subcontractors’ actions and omissions.
The teaming agreement is an agreement to enter into a subcontractor agreement for a future project whereas a subcontractor contract is with respect to an actual project with defined obligations, milestones and requirements.
Teaming agreement vs teaming arrangement
A teaming agreement should be nuanced from a teaming arrangement.
A teaming agreement is a one-time agreement for one specific tender, bid or client solicitation.
A teaming arrangement is when two or more businesses create a structure or make “arrangements” to have a more extensive organization with regards to how they bid for projects or contracts.
In the context of an arrangement, the parties may choose to jointly form a legal entity or create a legal structure where they can use the same setup on a long-term and in a repeatable fashion.
Forming a partnership or joint venture to act as a prime contractor in the context of a teaming partnership can bring the following benefits:
- The new business entity can enter into different contracts
- The teaming partners limit liability to the newly created entity
- The business partners can develop a long-term relationship that may be beneficial to both
On the flip side, the teaming contractors in a teaming arrangement will have to deal with the following drawbacks:
- Joint liability with regards to the obligations assumed by the partnership or joint venture
- Internal disputes arising from conflicts between the business partners with respect to how to manage the partnership and joint venture entities
- Having a long-term relationship can be a drawback in some cases when partners no longer wish to deal with one another
- Depending on the applicable laws, the partnership or joint venture may be qualified as an “affiliate”
It’s important that businesses or contracting parties entering into a teaming agreement draft the terms and conditions of the contract in such a way as to protect their business interests and provide themselves with the flexibility to adapt to changing client needs.
What contract language should you include in your teaming agreement template?
What contract clauses should you include in your teaming contract?
Here are the most important contractual provisions you should focus on when dealing with a teaming agreement:
- Identification of the prime contractor and subcontractors
- The purpose for which the teaming agreement is entered into
- Allocation of roles and responsibilities between the parties
- Allocation of costs, expenses and liabilities
- Distribution of profits and earnings
- Intellectual property clause
- Confidentiality clause
- Contract term
- Limitation of liability clause
- Indemnification clause
- Dispute resolution clause
- Choice of law
- Non-competition clause
- Non-solicitation agreement
- Termination provisions
- Survival clause
Depending on your project’s specific nature or cooperation, the potential risks and legal liabilities, and possible rewards, you should carefully evaluate the need and scope of key contractual provisions.
It may be useful in creating a teaming agreement checklist or work document allowing you to standardize your evaluation approach when drafting, reviewing or looking to enter into a teaming contract.
Teaming contract enforceability
When drafting your teaming contract, you want to ensure that your contractual provisions are drafted in a manner that the courts can enforce.
In some jurisdictions, courts have determined that a contractual obligation to agree on a future agreement is vague and not enforceable.
An “agreement” to “agree in the future” is not necessarily enforceable.
Some will argue why bother with teaming agreements if they are not enforceable as we cannot “agree to agree”.
According to them, there is no advantage for a subcontractor to enter into an agreement with a prime contractor when it is not guaranteed that it will eventually be formally contracted as a subcontractor.
Although teaming agreements are subject to enforceability challenges, a contract lawyer or legal professional can draft teaming agreement templates incorporating terms and conditions that enable better odds of enforceability.
As such, to ensure that the obligations to enter into a future agreement are enforceable, the contracting parties may want to:
- Agree on the type of agreement to be entered into in the future
- Define the scope of the work are contemplating to agree upon
- Outline the proposed financial terms of the contract
- The term or duration of the teaming agreement
The more you can eliminate the vagueness of the “future agreement”, the more you can increase your chances of the terms of the teaming agreeing being enforceable.
Teaming agreement FAQ
Are teaming agreements necessary
Teaming agreements are not absolutely necessary for businesses to bid on contracts or win deals.
However, many businesses find value in combining their resources, expertise and knowledge to better compete in the market.
Typically, teaming agreements are intended to:
- Address contracts or projects that are broad in scope that a single company may not have the capabilities to handle alone
- Address qualification gaps where each teaming partner brings different skills, expertise and knowledge to the team
- Allow teaming businesses to prepare and submit proposals to win major contracts and RFPs
- Allow teaming partners to share risks and costs for working on major projects
What are teaming agreement advantages
A teaming agreement offers important benefits allowing a company to:
- Penetrate a new market
- Leverage the skills of another to deliver a product or service
- Reduce its risk
- Reduce funding needs for a project
- Bid on contracts and win over the competition
- Bid on a contract even if it lacks all the required experience or knowledge
- Work on a contract that otherwise it would be ineligible
What are teaming agreement disadvantages
Teaming agreements have important drawbacks that must be evaluated to ensure they do not outweigh the benefits:
- A company may give away know-how
- A competitor may access your technology
- A company may enter into a new market that it was not prepared to handle
- Some financial obligations are mitigated but more liability is assumed
- A company is required to assume unexpected legal and financial obligations
Are teaming agreements enforceable
Well-drafted teaming agreements can be enforceable although they are prone to enforceability challenges.
The reason is quite simple.
The courts consider that the obligation to “agree to agree in the future” is too vague and undefined.
As a result, a vague agreement to agree will not be enforceable.
However, to mitigate this risk, the parties to the teaming contract should outline the scope, purpose and potentially some of the terms of the “future agreement”.
If the prime contractor is agreeing to enter into a subcontractor agreement with another company, it may be worth defining the skeleton of what the subcontractor agreement will look like.
The teaming agreement itself should have a clear scope, purpose, legal obligations, term and possible remedies.
If the parties can incorporate proper dispute resolution mechanisms in their agreement and agree on how a company may terminate the teaming agreement, it may allow the parties to enforce remedies for breach of contract.
Is a teaming agreement a contract
Yes, a teaming agreement is a contract.
A teaming agreement is a contract between two or more contracting parties whereby they agree to join resources, expertise, or other complementary capabilities to bid on a contract or execute a certain contract’s obligations.
When the parties enter into a one-time agreement, we’ll refer to that as a teaming agreement.
When the parties set up a joint venture or partnership to bid on multiple contracts or work in collaboration with one another on a long-term basis, we’ll refer to that as a teaming arrangement.
What is a teaming partner
A “teaming partner” is typically referred to as a party to a teaming agreement.
They are referred to as “partners” as the parties to a teaming agreement will collaborate with one another to deliver a product or a service.