The subtle difference between using a contractor teaming agreement vs joint venture is that a teaming contract essentially identifies the prime contractor and subcontractor relationship and discusses the roles of each to the government during the bidding and evaluation process. by contrast, in a joint venture (JV) arrangement, the entity is looked at as the official offeror for evaluation purposes. Each party keeps its own legal identity.
- Teaming agreement vs joint venture agreements – they have different application analyses when applying federal procurement law.
- Many companies use the two terms interchangeably in their proposals and can create an edge for a competitor company to file a bid protest.
- By understanding the difference between teaming and joint venturing, you can reduce the chances of losing your government contract in a bid protest.
Although the new SBA rules limit the possibility of affiliation, both types of agreements are fertile ground for small business size protests and GAO protests for violation of the limitations on subcontracting rules. Simply copying and pasting generic templates and joint venture contracts have now become a dangerous practice. Small businesses and large DOD contractors should beware.
Contractor Teaming Agreement Definition and Meaning
FAR 9.6 allows companies to enter into a teaming contract for new projects. Under the legal definition, team arrangements in government contracting allow two companies to join forces when bidding on major government contracts. However, the prime contractor must be aware of the legal pitfalls that can trap them. See also Hiring Incumbent Employees.
In this kind of prime subcontractor arrangement, there is only one prime contractor that is in control of the contract but executes a contractor teaming agreement with one or more potential subcontractor companies. Failure to comply with these basic requirements means that you will not meet the statutory definition and may forfeit the contract in an SBA size protest.
- The prime contractor must still show that it is in control of the primary and vital contract requirements.
- A team contract must have clear terms and conditions.
- There should only be one team agreement per contract.
- Be aware of much your teaming / subcontractor contributes assets to the project
- Understand how the SBA looks at common management and the dangerous Ostensible Subcontractor Rule
Small Business Size Protests Have not Gone Away – Similarly Situated Entity Rule
Challenges to the use of government teaming contracts often arise when an unsuccessful bidder files a complaint to the contracting officer or SBA under a small business size protest. This puts the prime contractor in a defensive posture because it then has to try to explain the intent of the business relationship after the fact. The new SBA rules have put into place the concept of similarly situated small businesses. This arguably reduces the number of bid protests being filed IF the prime contractor appropriately applies the rule. Case law and court decisions still show that this still a constant problem.
Understanding the difference between a teaming agreement vs joint venture agreement is critical when responding to SBA protests and affiliation challenges.
- One important tip for contractors when it comes to a contractor teaming contract vs subcontract is that the teaming agreement may not be binding in court.
- The courts have decided that exclusivity joint venture agreement clauses in contracts may be binding to prove damages. See X Technologies Inc. v. Marvin Test Sys. Inc., No. 12-50230, (5th Cir. June 11, 2013),
- It is always a best practice to have a separate subcontract that articulates the rights and obligations of the parties.
Some basic tips to keep in mind include:
- The SBA generally does not approve teaming contracts ( However, if you are an 8(a) company, you can be treading on dangerous grounds if you do not inform the SBA (preferably in writing).
- Although there are some legal protections from SBA affiliation, the facts of your case can still leave you exposed.
- The ability to negotiate a subcontract or teaming agreement includes assessing whether the other company can comply with federal procurement law.
- You can be still exposed to the Ostensible Subcontractor Rule when using contractor teaming agreements.
- Do not use teaming agreements excessively for long term contracting relationships
- Depending on your contract clauses, teaming arrangement laws may only apply in the United States
Joint Venture Agreement and JV Definition
Government contracting law allows two or more companies to pool their resources and join efforts to secure larger government contracts. See FAR 9.6 and 13 CFR 124.513. However, these are brutal rules that can get companies into legal trouble if not properly applied.
Companies still need to be aware of costly landmines that still lurk under federal contract joint venture agreement rules: Under New SBA regulations, the legal definition allows joint ventures to qualify as small for any government contract so long as each venturing partner individually qualifies as a small business under the SBA size standards for the specific NAICS code for the solicitation and are similarly situated.
Despite the new change, small businesses must not discount the fact that affiliation can still occur for other reasons. A joint venture agreement as compared to teaming agreements can have a little more flexibility but also have demands for compliance. For example,
- The joint venture entity serves as the only official offeror to the agency.
- The joint venture agreement must clearly show who is the managing member. See Joint Venture Regulations.
- Joint venture arrangements have higher requirements for accounting and sharing risk. However, the managing joint venturer must still be in charge and take control.
- Sometimes getting the SBA to approve a JV can be problematic when there is a pending bid.
Joint Venture Entity is the Offeror
Generally speaking, joint venture agreements force the agency, for evaluation purposes, to view the joint venture as the offeror. However, SBA rules make it clear that the two companies do not have to go out and form a separate business entity to become a joint venture.
This would mean (hopefully to the courts) that although the source selection team may look at the two businesses as one offeror, the legal implication should allow for the companies to still keep their separate identities. In other words, if the regulations allow you to not have to form a separate legal entity, then the government cannot disregard the regulation that allows the two entities to not have to form one company. See also SBA Joint Venture Agreement Contract Rules & SBA Approval.
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The SBA expanded upon this rule by saying that when the companies choose not to form a separate legal entity to form a joint venture, then for future government contracts, the individual companies can rightly claim relevant past performance and not rely on the joint venture relationship.
- Courts should scrutinize federal contracting agencies that simply state that no matter what, the companies are one legal entity.
- It is probably better for the two companies to not form a third entity if the rules allow for it.
- It would seem that there must still be separate accounting for the joint venture contracting relationship since SBA rules have not changed on this matter.
- You may want to include a mentor protege joint venture attorney early in the procurement process
There are two subcontracting related problems facing most government contractors:
- Failure to anticipate the road ahead!
- Problem: Though a large of today’s government contractor executives say responding quickly to change is the only way to survive our current federal procurement challenges, about 1 in 3 are even able to identify threats before they strike, much less proactively position their business for growth.
- Solution: knowing the differences between a joint venture vs teaming agreement arrangement will give companies the power to predict the future based on the type of procurement, the problems, and risks that can arise and act on it. The risk when engaging with another contractor, harnessed by the power of understanding the SBA’s new rules, brings prime government contractors to the forefront of their industry, ready to compete to win.
- Lack of follow-through!
- Problem:53% of business leaders surveyed admitted their organizations are ineffective in making the right decisions about how/when to respond to procurement legislative changes such as the new SBA rules on limitations on subcontracting and affiliation.
- Solution: Know when to use teaming contracts vs joint venture when to engage in joint ventures, during the pre-planning stages of bidding on new government contracts. Not only will you be prepared for your competition’s challenges but the risk of non-performance will be significantly reduced.
Impact of SBA’s New Rules
Although the SBA has issued new rules that limit the possibility of affiliation between companies, companies can still experience harsh consequences for having improper subcontractor relationships.
The recent rules focus on limiting the likelihood of affiliation. However, failure to align teaming or joint ventures with the regulations can still have a grave impact on small businesses.
- Contractors should be aware of essential differences in the new rules and how to still avoid losing an award.
- Being proactive at the initial bidding stage is critical.
Whether you’re using an SBA contractor joint venture vs teaming agreement, did you know that a teaming contract between two government contractors, by itself, is not enforceable in court?
Small businesses should be aware of the decision from the U.S. District Court for the Eastern District of Virginia, Cyberlock Consulting Inc. v. Info. Experts Inc., — F.Supp.2d — (E.D.Va. Apr. 3, 2013).
When to Use a Teaming Agreement in Federal Government Contracts?
There is no rules that dictate when to use a teaming agreement or joint venture agreement. Each situation is different. What you expect from the respective relationship is essential. As a baseline, you can use a teaming agreement when you have some level of past performance and you do not have to unreasonably rely on your subcontractor to get the contract. In addition, if your teaming partner has some level of past performance that can help you reach larger contracts, then you may want to consider using a teaming agreement. At the end of the day, having the right guidance from qualified professionals can avoid any common legal mistakes. See also Service Disabled Veteran Government Contracts & SDVOSB Teaming Arrangements.
Avoid costly legal pitfalls and know rules about SBA teaming agreement vs subcontract and affiliation.
In government contracting, small businesses sometimes are unclear about the difference between a teaming and joint venture agreement.
Although each agreement may seem straightforward, the legal pitfalls are numerous and can be seen in many SBA size protest decisions and appeal cases. The SBA has recently implemented new rules applicable to both agreements.
Requirements – Teaming Must be Contract Specific
Both types of agreements serve as a tool under federal procurement regulations where two or more contractors join forces to secure a particular government contract.
Although the new rules tend to minimize the possibility of affiliation in small business joint ventures, contractors should be also aware that affiliation is still possible. See information about “similarly situated” business subcontracts.
- Although a team relationship has fewer restrictions, your competition can still challenge your small business size status.
Tip: Under the new SBA rules, when there is a bundled contract, small businesses can enter into a teaming agreement vs joint venture agreement with one or more partners and submit a bid as a small business without the worry of affiliation. See dangerous SBA message sent to prime contractors using named subcontractors.
Teaming Agreement vs Joint Venture Rules – Do You Have a Similarly Situated Small Business?
The new rules also addressed 13 CFR 121.103 (h)(4) on the legal issues of how the SBA finds an affiliation between joint venture partners for small business size determination purposes. The key to reducing the possibility of losing your contracting in an SBA size protest is to understand and properly the rule introducing similarly situated small businesses as subcontractors. In most situations, if the rule is applied to your subcontracting relationships, you can arguably avoid liability under SBA affiliation rules.
Joint Venture vs Subcontracting
To avoid costly legal mistakes, companies should understand that joint venture entities also have a limitation on the amount of work it can subcontract. First, there is a frown upon the joint venture subcontracting to the individual joint venture entities. However, there are some exceptions to the rule.
Second, the FAR distinguishes between a teaming agreement and a joint venture. Whereas a teaming agreement is a prime and subcontract relationship between the parties, a joint venture is a separate legal entity that is comprised of two or more companies that form one entity for the purpose of performing an identified government contract. See how to avoid JV mistakes.
The joint venture can only subcontract a specified amount of the awarded project. This is an area where contractors roll the dice without consulting legal counsel.
Is the Ostensible Subcontractor Rule Gone?
Looking at the Ostensible Subcontractor Rule, and the concept of the prime contractor performing the primary and vital requirements or the issue of unusual reliance, the SBA excluded the affiliation requirement for contractors that are similarly situated. See 13 CFR 125.1.
As recently as December 13, 2016, OHA has decided a case that still considers the Ostensible Subcontractor Rule. The rule is still around.
- SBA 8(a) joint ventures must be especially careful because they have unique obligations to the SBA. For example, there must be SBA approval for the initial and amended joint venture agreement.
- JV agreements, without following the specific legal guidelines, will still automatically affiliates both companies.
- This may cause you to be over the size standard and lose the contract.
Find out more about FAR 42.12 Government Contract Novation Agreement Process.
Impact on Your Company
When considering a teaming agreement vs joint venture, the impact of your case can be limited when you get legal guidance on bidding for federal government contracts. As mentioned above, the difference between team agreements and a joint venture contract can have grave consequences when you are ultimately awarded a government contract, and your competition files a small business size protest.
- You should seek legal advice given the newly posted SBA regulations.
Get Immediate Help
For help forming your teaming agreement relationship or joint venture agreements in federal government contracts, call our small business government contract lawyers at 1-866-601-5518. FREE INITIAL CONSULTATION.