How To Improve Your Teaming Agreement, Part I

Most companies design their contracts with dual goals in mind: to execute the deal, but to also prepare in the event of a breach. When it comes to teaming agreements, however, even the most sophisticated contractors lose sight of the need for protection if the relationship sours. With a lucrative U.S. federal government contract waiting in the wings, team members assume everything will work out once they receive the contract award.

Too often, this rosy optimism proves short-lived. When it comes time to actually negotiate and perform the subcontract, the parties may find themselves having successfully bid for the prime contract, but unable to negotiate their internal agreement. When this occurs, many tread into the unpredictable no-man's land of teaming agreement litigation.

An improved agreement can help avoid those murky waters and create stability and predictability in future disputes. This series of articles is intended to guide all government contractors—primes and subs—on how to restructure their teaming agreements to protect themselves in the event of a failed relationship.

How Do Teaming Agreement Disputes Arise?

Federal regulations encourage prime contractors to team with one or more companies when they bid for projects with the U.S. government and its agencies.1 These relationships, usually memorialized in teaming agreements, allow companies to complement each other's capabilities and offer the government a wider range of skills, backgrounds, and preferential statuses, such as veteran-owned small business or small disadvantaged business.2 Typically, a potential subcontractor (team member) agrees to support the proposal of the prime contractor (team leader) by providing information and lending its qualifications to the bid.3 In exchange, the team leader offers to execute a subcontract or attempt to negotiate a subcontract with the team member if it receives the prime contract.

In most cases, the parties honor their respective agreements, but there are times when a falling out occurs before they have had a chance to finalize the subcontract.4 For example, a team leader may come to learn that it can more profitably obtain its teammate's services elsewhere and force its teammate to compete with other subcontractors.5 On the other hand, a team member can find itself unable to deliver on its promise to provide specialized services, forcing the team leader to obtain a replacement subcontractor at a higher cost.6 When these breakdowns occur, one party may file suit for breach of the teaming agreement—a form of litigation fraught with uncertainty.

The Murky Waters of Teaming Agreement Litigation

Teaming agreement...