Teaming Agreements and Joint Ventures Types of Agreements to Work Together 3 Main Methods to Work With Another Contractor • Traditional Prime/Sub Relationship • Joint Venture Agreement • Teaming Agreement (prime/sub relation) Traditional Prime/Sub Relation • Prime is responsible for ALL aspects of contract performance • Government has privity of contract only with prime • Contractor free to shop the bids – No guarantee that a specific sub will be hired Limits on Subcontracting • 13 CFR 125.6 • Prime must perform the following percentages of work – Services – 50% of cost of contract incurred for personnel with its own employees – Supplies/Products – 50% of the cost of manufacturing the supplies or products (not including the cost of materials) – General Construction – 15% of the cost of the contract with its own employees (not including cost of materials) Practice Tips for Prime/Subcontract Relations • Primes are responsible for ALL of the subcontractor’s faults • When speaking with the Government, blaming subcontractors for problems is akin to blaming yourself • Refrain from documenting and detailing subcontractor failures – Evidence of prime contract failures Practice Tips for Prime/Subcontract Relations • Subcontractors can submit requests for equitable adjustment to Government – Normally, privity prevents a direct suit – With a sponsorship agreement with the prime, the sub may make these demands directly to the Contracting Officer Joint Ventures • FAR 19.101 defines a Joint Venture as: – an association of persons or concerns …concerting to engage in and carry out a single specific business venture for joint profit, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis Joint Ventures (cont.) • Often Used for Small Businesses • Contract is issued in Joint Venture’s name • Contract performance responsibility lies with Joint Venture • Joint Venture must be formalized BEFORE submitting a bid • Agreement must include sharing profits/losses proportionate to each party’s contributions to business operation Joint Ventures (cont.) • Specific Programs have Specific Requirements – SDVOB JVs must have the SD member be the program manager and appoint the project manager • A Joint Venture is a separate legal entity (either a partnership or a corporation) – We recommend a Limited Liability Company • Characteristics include joint ownership, joint management, and sharing or profits or losses Joint Ventures (cont.) • Typically only the JV has privity of contract with the customer • The JV may have its own plant, equipment, facilities, personnel, etc., or it can subcontract its work to its parents • The Government often insists on parent company financial and performance guarantees • Once the contract is completed, the joint venture is dissolved along with the new company that was formed to perform the contract Joint Venture Affiliation Rules • The General Rule - 13 CFR 121.103(f): – In joint ventures, the joint venture partners are affiliated with regards to that procurement, and the revenue/employees will be combined to determine size, unless…. • JV partners will not be found affiliated if: Each concern is small and 1. The procurement is a bundled procurement 2. The procurement is not bundled but is a large procurement: (a)Revenue based size standard: the dollar value of the procurement, including options, exceeds half the size standard of the procurement (b)Employee based size standard: dollar value of the procurement, including options, is over $10 M Summary of 8 (a) Joint Venture Content Requirements • Purpose – Address Duration • 8(a) firm as managing venturer • 51% of net profits to 8(a) firm • Special bank account • Itemization of resources • Responsibilities of JV parties • Commitment to ensure performance Summary of 8 (a) Joint Venture Content Requirements (cont.) • Quarterly Financials • Project End Financials • SBA approves modifications and inspects records • 8 (a) must maintain accounting and administrative records • 8 (a) must keep all files after completion of project Table of Contents For a Joint Venture Agreement (27 pages) 1. Definitions 2. Formation of the Company 3. Meetings of Members 4. Contributions to the Company and Capital Accounts 5. Allocations, Distributions, Elections and Reports 6. New Members and Transferability 7. Management of Company 8. Dissolution and Termination 9. Representations, Warranties and Covenants 10.Miscellaneous Provisions and Attachments Contractor Teaming Agreements (CTAs) • FAR 9.601: ―Contract team arrangement‖ refers to: (1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program. Disclosure to Government of Teaming Agreements • FAR 9.602—Generally recognizes their acceptability in many situations • FAR 9.603: ―The Government will recognize the integrity and validity of contractor team arrangements; provided the arrangements are identified and company relationships are fully disclosed in an offer…‖ Essential Principles of Successful Teaming Agreements First Principle: • Teaming agreements should be in writing • Address the intentions, obligations, and responsibilities of the parties • Address all foreseeable problems – Agreements/contracts are the rule book when things don’t go as planned – Run the logical ―what ifs‖ and see how your agreement addresses the issue Essential Principles of Successful Teaming Agreements SECOND PRINCIPLE: Advance Confidentiality and Non Disclosure Agreements Why? Confidentiality and Non Disclosure agreements are designed to protect proprietary data when the parties are in the pre- formation stages. Agreements should be in writing and signed by both parties prior to the time a decision is made on whether or not to team. The Confidentiality and Non Disclosure agreement should be contained in a different document than the teaming agreement. The document should contain responsibilities of partners on the treatment of proprietary data during the time when the parties are evaluating whether to form a team. Essential Principles of Successful Teaming Agreements THIRD PRINCIPLE: Notice Of Intent Teaming agreement should state whether the prime contractor intends to award a subcontract to the potential subcontractor if the prime contractor is awarded the contract in question. If not specifically binding, the teaming agreement should state if the agreement merely represents a non-binding expression of interest to award a subcontract to the potential subcontractor in the future. Teaming agreements should clearly state if there are any conditions relating to whether the prime contractor will award the subcontract to the other party should it be awarded the prime contract. Essential Principles of Successful Teaming Agreements FOURTH PRINCIPLE: Essential Terms Of The Teaming Agreement Teaming agreements should contain all of the conditions essential to an implementing subcontract Teaming agreements should include, but not be limited to: 1) explicit subcontractor scope of work; 2) price and time for payment; 3) estimated quantity of goods or services involved; 4) anticipated time of performance; 5) date of delivery of the work; and, 6) any foreseeable problems/what ifs Essential Principles of Successful Teaming Agreements FIFTH PRINCIPLE: Protection Of Intellectual Property Address limited disclosure of intellectual property and other proprietary data in the teaming agreement Essential Principles of Successful Teaming Agreements SIXTH PRINCIPLE: Disputes And Damages The teaming agreement should contain clauses to resolve disputes arising from the teaming agreement utilizing alternative dispute resolution methods such as mediation and arbitration. Both parties should recognize the right of the other party to include clauses providing the payment of damages for a breach of the teaming agreement.
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