This is the third installment in a series of posts on teaming arrangements in the construction industry. My first post in the series addressed teaming arrangements generally and described the two most common forms: joint ventures and teaming agreements. The second post addressed important terms in a joint venture agreement. I turn now to teaming agreements, including a discussion of some of the nuanced differences between a joint venture and a teaming agreement, as well as important contract provisions that will allow for a successful teaming agreement.
Unlike joint ventures, teaming agreements generally allow participants to remain independently owned and controlled. In the most common scenario, a teaming agreement serves as an agreement between a prime contractor and a subcontractor to work together and negotiate a subcontract if the team is successful in winning a contract award. A teaming agreement typically encompasses more traditional notions of control and liability whereby the prime contractor possesses control over the project while the subcontractor is responsible only for the portion of the work it performs.
The prevailing federal teaming business model is one in which larger prime contractors seek out smaller subcontractors as team members. The teaming agreement is not a subcontract, but rather it is a good faith agreement that the prime contractor and the subcontractor will work together to pursue a prime contract with the understanding and promise that they will enter into a binding subcontract agreement if the owner awards the prime contract to the team.
Teaming agreements between two or more subcontractors, while less common, can be equally beneficial. For example, subcontractors with unique and complementary specializations might be best suited to respond to a particular opportunity that would otherwise have been outside of their individual capacities. Whether a teaming agreement is between a prime contractor and a subcontractor or between two subcontractors, the agreement itself should, like a joint venture agreement, contain certain provisions that will sufficiently ameliorate some of the challenges and concerns common to such agreements.
Many of the characteristics of a well-crafted teaming agreement will mirror that of the joint venture agreement. The teaming agreement should contain basic information such as identity of the parties, their addresses, and their roles. It should address concerns common to most any construction project, such as scope of work, payment, insurance, warranties, indemnification, termination and default, liability and dispute resolution.
1. Roles and Responsibilities
In addition, the well-crafted teaming agreement should clearly define the roles and responsibilities of the participants, with respect not only to the proposal preparation period but also to the post-contract award period. The agreement should include clear statements of the division of work tasks among team members. Most typically, the teaming agreement will vest the prime contractor with control and responsibility for the daily management of the procurement and for project management in the event of a contract award. In this regard, the agreement will commonly require that the remaining team members submit their proposals to the prime contractor covering the team member’s portion of the overall effort. These provisions addressing the division of responsibility are particularly important in a teaming arrangement where the members are acting outside the realm of their traditional roles.
It is vital that the teaming agreement clearly states the intent of the parties to negotiate a contract in good faith if the team receives the contract award. Indeed, questions of intent provide a fertile ground for disputes.
Next, the teaming agreement should contain terms addressing exclusivity. Team members should enter the relationship with the assurance that they will not be replaced and that the other members are not teaming with other firms for the same procurement. The agreement should assure to the extent possible that team members will not wind up competitors.
Finally, the teaming agreement should protect the competition-sensitive proprietary information of the team members. Confidentiality is particularly important in these arrangements wherein would-be competitors are teaming for the chance to obtain work. If the contract is not awarded to the team, the information exchanged, including financials and other sensitive materials, should be sufficiently protected.
Check back soon for a post addressing the risks and benefits of teaming arrangements in the construction industry.