Elizabeth Friswold, CPA explains the benefits of teaming agreements and things you should consider.
Are you familiar with teaming agreements? Did you know that teaming agreements could benefit your company? Learn the basics and benefits of these types of agreements.
Where did teaming agreements come from?
Born from the Small Business Jobs Act of 2010 (SBA), the Small Business Teaming Pilot program was initiated to increase access to procurement and contractor opportunities to small businesses.
What are teaming agreements?
- When two or more contractors have a formal agreement to collaborate on a short-term goal/project.
- Relationships can vary – the most common type of teaming is between a prime contractor and their subcontractor(s). An alternative option is between two companies who collectively act as prime contractors – this is called dual prime contract For either type, the contractors are not required to be in a partnership. This is a significant differentiation from joint venture agreements.
How would teaming agreement benefit my business?
- Increase bonding capacity to pursue larger projects
- Bring skill sets of different companies together to drive down contract costs and present competitive bids on government proposals
- Better market exposure and access to larger jobs
- Reduce risk by sharing responsibilities with other contractors
- For government contracts, as a subcontractor in a teaming agreement, you are no longer hiding behind the prime contractor. Your business is responsible for its own established roles listed in the contract and have direct access to government resources
- You will be paid directly by the government based on your business’ unit prices and hourly rates
What questions and facts should I consider when exploring teaming agreement opportunities?
- Is each party a reputable contractor who will get the work done correctly and timely?
- Is the teaming agreement in alignment with your business goals?
- Do the management styles of each contractor collaborate well with each other?
- Who is performing majority of the work? Only businesses who meet the criteria under the SBA rules may be prime contractors in teaming agreements.
- Is the subcontractor in the teaming agreement at risk of being challenged by the SBA due to their size? (see tips below)
I’ve decided to initiate a teaming agreement – what do I do now?
Hire a knowledgeable entourage including an accountant and attorney who specializes in these areas. They will be able to assist you when determining if a teaming agreement will work for you and that it is documented properly.
To be eligible to participate in the teaming agreement as a prime contractor, your business must either be a for-profit or non-profit private organization in existence for at least 3 years. It must be able to demonstrate problem solving skills and experience with small business issues.
Each party of the teaming agreement will complete the Contractor Team Arrangement application listing each party’s roles and responsibilities – these will be individually proved for each party.
Below are items to consider when drafting your teaming agreement. Utilize the expertise of your entourage to avoid any potential SBA challenges. These may disqualify your teaming agreement from performing the contract.
Other Tips and Considerations
- Reduce your risk of size and affiliation challenges from the SBA.
- Make sure the prime contractor is performing the primary and vital roles of the contract (i.e. more than 50% of the contract). Subcontractors should be limited to discrete functions, which should be specifically documented in the agreement.
- Agreements should explicitly state that the prime contractor (which is considered a small business under SBA standards) is the decision maker for the proposal and responsible for hiring additional subcontractors.
- To avoid charges of affiliation between the prime and subcontractor – additional services provided by the subcontractor to the prime contractor outside of the contract should be avoided– i.e. renting office space to the prime contractor, preparation of the proposal, supplying all of the resources. This may give the appearance that the prime contractor is unduly reliant on the subcontractor – which may be classified as a joint venture – not a prime-subcontractor relationship.
- DO NOT USE business terminology commonly used joint venture agreements (i.e. sharing profits and losses). This is a red flag to the SBA which could lead to unwanted scrutiny.
- Consider signing a confidentiality agreement – be careful of what information is being shared prior to signing a confidentiality agreement
There are many perks of teaming agreements, including exposure to fruitful government contracts, access to skill sets outside your line of business meanwhile, mitigating the risk of profit fade. Interested in learning if a teaming agreement would be a good fit for your company? Reach out to our construction division for specialized consulting.