Government contracts often require capabilities that no single company possesses. A cybersecurity firm might need construction management expertise. A small business might have the technical skills but lack the past performance record. A large systems integrator might need specialized niche capabilities.
Teaming agreements solve this problem by allowing companies to combine strengths and pursue opportunities together. Done well, they create competitive advantages for all parties. Done poorly, they lead to disputes, lost work, and damaged relationships.
This article explains how teaming agreements work, what provisions they should include, and common pitfalls to avoid.
What Is a Teaming Agreement?
A teaming agreement is a pre-award contract between a prospective prime contractor and one or more prospective subcontractors to pursue a specific government contract opportunity together.
FAR Subpart 9.6 recognizes two types of contractor team arrangements: (1) Two or more companies form a partnership or joint venture to act as a potential prime contractor, and (2) A potential prime contractor agrees with other companies to have them act as subcontractors under a specified government contract.
This article focuses on the second type, the prime-subcontractor teaming arrangement, which is more common.
Think of a teaming agreement as the 'pursuit document.' It governs the relationship during proposal development and sets expectations for what happens if the team wins. The subcontract that follows is the 'performance document,' governing actual contract execution.
Why the Government Cares
The government recognizes teaming arrangements because they often produce better outcomes. Per FAR 9.602, contractor team arrangements may be desirable when they enable companies to complement each other's capabilities, offer the government the best combination of performance, cost, and delivery, and allow participation by small businesses and others who might not compete independently.
The government will not normally require dissolution of a team arrangement, provided the arrangement is disclosed in the proposal and company relationships are fully explained.
Teaming Agreements vs. Joint Ventures
Teaming agreements and joint ventures are different structures with different implications.
| Aspect | Teaming Agreement | Joint Venture |
|---|---|---|
| Legal entity | No new entity created | Creates a new legal entity |
| Privity with government | Only prime has privity | JV has privity as the contractor |
| Small business status | Each party retains own status | JV has its own size determination |
| Liability | Prime responsible to government | JV responsible; members may have joint liability |
| Best for | Complementary capabilities | Shared risk and reward; small business set-asides |
Joint ventures are often used when small businesses want to combine capabilities while maintaining eligibility for small business set-asides. Teaming agreements are typically simpler and appropriate when one party will clearly be the prime contractor.
Essential Provisions in a Teaming Agreement
A well-drafted teaming agreement addresses the following areas:
1. Identification of the Opportunity
Tie the agreement to a specific procurement. Include the solicitation number (or anticipated solicitation if pre-RFP), procuring agency, contract name or description, and anticipated contract value and period of performance.
Vague agreements covering 'future opportunities' are difficult to enforce and can create confusion about what each party committed to.
2. Roles and Responsibilities
Define who does what, both during proposal development and after award.
During pursuit: Who leads proposal management? Who communicates with the customer? What resources will each party contribute? How are proposal costs allocated?
After award: What is the anticipated work share (percentage or scope)? What specific tasks or deliverables will the subcontractor perform? What key personnel will the subcontractor provide?
Specificity matters. 'Subcontractor will perform IT services' is vague. 'Subcontractor will provide help desk support for up to 5,000 users, including Tier 1 and Tier 2 support during business hours' is specific and enforceable.
3. Exclusivity
Exclusivity provisions address whether the subcontractor can team with other primes on the same opportunity, and whether the prime can consider other subcontractors for the same work.
Most primes want exclusive subcontractors to prevent competitors from accessing the same capabilities. Subcontractors should ensure exclusivity obligations end if the prime decides not to pursue the opportunity, the prime loses the competition, or the teaming agreement terminates for any reason.
Avoid open-ended exclusivity that prevents you from pursuing other opportunities indefinitely.
4. Work Share Certainty
The most contentious issue in teaming agreements is whether the subcontractor is guaranteed work if the prime wins.
Strong commitment: 'Prime shall award Subcontractor a subcontract for [specific scope] within 30 days of prime contract award.' Weak commitment: 'Prime and Subcontractor will negotiate in good faith toward a mutually acceptable subcontract.'
Courts have historically viewed teaming agreements as 'agreements to agree' that lack enforceability. A promise to negotiate in good faith may not be worth much if the prime decides after winning that they want different subcontractors or different terms.
Subcontractors should push for specific work share percentages or dollar values, commitment that subcontract terms will reflect proposal pricing, right to review final pricing before submission, provisions that the subcontract will not be terminated for convenience (except if the prime contract is terminated), and commitment that all options in the prime contract will flow to the subcontract.
5. Pricing Protection
A common complaint: after the prime wins, they pressure the subcontractor to reduce prices below what was proposed.
Protect against this by including commitment that subcontract pricing will reflect pricing provided during proposal development, right for subcontractor to review the pricing volume before submission, and prohibition on the prime submitting pricing that differs materially from what the subcontractor provided.
6. Confidentiality and Non-Disclosure
Teaming partners share sensitive information during proposal development: pricing data, technical approaches, past performance details, key personnel resumes.
The teaming agreement should define what information is confidential, prohibit disclosure to third parties (except the government), require return or destruction of confidential information upon termination, survive termination of the agreement, and include an exception for FAR whistleblower requirements (FAR 52.203-18 and 52.203-19).
Many teams use a separate mutual non-disclosure agreement incorporated by reference.
7. Intellectual Property
If joint development of intellectual property is anticipated, address who owns IP developed during proposal preparation, who owns IP developed during contract performance, rights to use each party's background IP, and licensing terms for any shared IP.
Without clear provisions, disputes over IP ownership can destroy otherwise successful partnerships.
8. Termination
Define when and how the agreement ends.
Automatic termination triggers: Prime contract is awarded to another contractor, prime decides not to submit a proposal, parties execute a subcontract (the subcontract supersedes the teaming agreement), or a specified date passes without award.
Termination for cause: Material breach by either party, or failure to negotiate a subcontract in good faith within a specified period.
Termination for convenience: Either party's right to terminate with notice, what happens to exclusivity obligations upon termination, and what happens to confidential information upon termination.
9. Dispute Resolution
Specify how disputes will be handled: governing law (which state's law applies), dispute resolution mechanism (negotiation, mediation, arbitration, litigation), venue for any legal proceedings, limitation of liability provisions, and indemnification obligations.
Small Business Considerations
Teaming agreements involving small businesses require careful attention to SBA regulations.
Limitations on Subcontracting
For small business set-aside contracts, the small business prime must perform a minimum percentage of the work:
| Contract Type | Minimum Prime Performance |
|---|---|
| Services (except construction) | At least 50% of personnel costs |
| Supplies | At least 50% of manufacturing costs (excluding materials) |
| General construction | At least 15% of personnel costs |
| Specialty construction | At least 25% of personnel costs |
A small business cannot simply pass work through to a large business subcontractor.
Ostensible Subcontractor Rule
The SBA's ostensible subcontractor rule (13 CFR 121.103(h)(4)) treats a prime and subcontractor as affiliated if the subcontractor performs the primary and vital requirements of the contract, or the prime is unusually reliant on the subcontractor.
Affiliation means the companies' sizes are combined for size determination purposes. A small business that is affiliated with a large business may no longer qualify as small.
Triggers for ostensible subcontractor concerns: The subcontractor will perform most of the work, the subcontractor is providing all the relevant past performance, the subcontractor's personnel will manage the contract, or the prime lacks the capability to perform without the subcontractor.
Structure your teaming arrangement so the prime maintains genuine management authority and performs meaningful work.
Using Subcontractor Past Performance
Under SBA regulations (13 CFR 125.2(g)), when a small business prime proposes with small business subcontractors and the prime lacks relevant past performance, agencies must consider the first-tier subcontractors' past performance as if it were the prime's.
This provision can help small businesses that have technical capability but limited past performance records. However, it only applies when the prime is a small business, the subcontractor is a small business, the subcontractor is specifically identified in the proposal, and the prime does not independently demonstrate the necessary past performance.
Mentor-Protégé Relationships
SBA's Mentor-Protégé program allows approved mentors to provide assistance to small business protégés without triggering affiliation. Mentor-protégé pairs can form joint ventures that qualify for small business set-asides, with the protégé's size status determining eligibility.
If you're considering a teaming relationship with a significantly larger or smaller partner, explore whether a mentor-protégé arrangement might provide benefits.
Common Mistakes
Using Templates Without Customization
Every teaming agreement should be tailored to the specific opportunity, parties, and circumstances. A teaming agreement for a single-award construction contract looks very different from one for a multiple-award IDIQ for IT services.
Online templates are starting points, not final products.
Vague Work Share Language
'Subcontractor will perform a significant portion of the work' means nothing in a dispute. Define scope, percentage, dollar value, or specific tasks.
One-Sided Exclusivity
Exclusivity that binds only the subcontractor while the prime retains full flexibility is unfair and may not survive legal challenge. If you're exclusive to the prime, the prime should commit to using you for the defined scope.
Ignoring Post-Award Realities
The teaming agreement governs pursuit. The subcontract governs performance. Make sure your teaming agreement includes provisions that protect you when the subcontract is negotiated: right to negotiate subcontract terms in good faith, pricing commitments that carry forward, and termination protections in the eventual subcontract.
Failing to Address Proposal Costs
Who pays for proposal development? If the subcontractor is contributing significant resources to proposal preparation, this should be addressed. Some agreements provide for cost sharing; others treat proposal costs as each party's own investment.
After the Award
If your team wins, the teaming agreement's job is largely done. Now you need a subcontract.
Best practice: Negotiate the subcontract terms in parallel with the teaming agreement, or at least before the proposal is submitted. Attach the draft subcontract as an exhibit to the teaming agreement. This reduces the risk of post-award disputes over terms that were never discussed.
The subcontract should reflect the work share and pricing committed in the teaming agreement, include appropriate FAR flow-down clauses, address payment terms, invoicing procedures, and timing, define deliverables, acceptance criteria, and performance standards, and include dispute resolution mechanisms.
Conclusion
Teaming agreements are powerful tools for pursuing government contracts that would be out of reach for a single company. But they're also sources of significant disputes when parties have different expectations about what was promised.
The best teaming agreements are specific, balanced, and drafted before the pressure of a proposal deadline forces shortcuts. They address not just the pursuit phase but also what happens when the team wins and needs to perform.
If you're considering a teaming arrangement, invest the time to get the agreement right. The relatively small cost of thoughtful negotiation upfront can prevent far larger costs from disputes later.
BidClever's BI and Analytics module helps you identify potential teaming partners by searching contract award data for companies with complementary past performance, agency relationships, or technical capabilities. Find partners who strengthen your proposal before you need them.