Major Issues in Teaming Agreements

1. Major Issues in Teaming Agreements Aileen A. Pisciotta, Esq. Executive Counsel, PLC The ASBC AIMS Working Group July 7, 2010

2. Summary • Nature and Limits of Teaming Agreements • Two Models of Teaming Arrangements • Joint Venture Model • Prime/Sub Model • SBA Affiliation Issues • Contract Issues in Teaming Agreements • Special Cautions Aileen A. Pisciotta

3. What is Teaming FAR Subpart 9.6 • An agreement • between two or more companies to form a joint venture or partnership to act as a potential prime contractor (JV Model); or • between a prime contractor and one or more companies proposed to act as subcontractors under a particular Government contract or acquisition program (Prime/Sub Model); • Entered into prior to the submission of a proposal in response to an RFP; and • That must be recognized if disclosed in a proposal, or after contract award if approved before becoming effective. Aileen A. Pisciotta

4. Purpose of a Teaming Agreement(Different from a Subcontract) • Focus is on preparation of a proposal, not performance under a contract. • Parties promise each other in good faith: • To cooperate in proposal preparation • IF a contract is awarded, to enter into prime (or prime/sub) agreements that include(s) certain features: • Allocation of task orders • Allocation of profits (JVs) • Project management structure • Teaming Agreement should always automatically expire: • If contract is awarded – TA will be replaced by a prime or prime/sub contracts • If no contract is awarded or if RFP is cancelled – no further contracts are required Aileen A. Pisciotta

5. Limits of Teaming No protection from antitrust. Prime contractor(s) in privity with customer always fully responsible for performance. No limit to agency’s right to review and consent to subcontractors. No insulation from joint venture liability. Aileen A. Pisciotta

6. Teaming Agreement Models Joint Venture Prime/Sub Aileen A. Pisciotta

7. Joint Venture Model • Privity with Customer: All parties to the JV • Common Characteristics • Unlimited scope • Proportionate sharing of profits and losses • Forms • Corporate entity (corporation or LLC) • Partnership • Contract • Consequences • Joint liability for all parties for each others’ defaults • Members should indemnify each other • If a legal entity; JV will have to be unwound Aileen A. Pisciotta

8. Prime/Sub Model • Privity with Customer: Prime only • Characteristics • Limited scope and existence • Sub bills for work performed; no sharing of profits • Subs may have to be separately approved by customer • Prime is identified as sole point of contact for the customer • Form - Contract • Consequences • Prime bears ultimate responsibility and sole liability other than through indemnity by sub for sub’s default. • Sub bears no liability for prime’s default. Aileen A. Pisciotta

9. SBA Affiliation Rules • 13 C.F.R., part 121 – “Affiliates” • Entities are “affiliates” of each other when one has the ability or power to control the other, or when a third party has the ability or power to control both. • Size determinations of affiliated companies are based on combined rather than individual measures. • Members of a JV team are always “affiliated” • SBA looks to actual rather than stated relationships – totality of circumstances: • Ownership • Management • Prior relationships or ties • Control under contract terms (affirmative or negative) • “Deemed” JV • Affiliation rules apply unless there is an exception • Possible loss of size qualifications Aileen A. Pisciotta

10. Exceptions to Affiliation Rulesfor Small Businesses • Mentor/Protégé (for 8a companies) • 13 CFR 124.513 – Applicable SBA JV regulations • A JV must be pre-approved • May pursue bundled or non-bundled large contracts (not just 8a set asides) • JV is “small” if • the 8a is “small” • The 8a is in the lead • No percentage of work requirements • Mentor may own 40% of the 8a • Bundled Procurements • Each small business meets NAICS code size limits • Then size standards are applied individually, not to the JV • Large Procurements • Each small business meets NAICS code size; AND • Project meets large size requirements: • Revenue based “size” --- $$ value = ½ NAICS size • Employee based “size” -- $$ value > $10 million Aileen A. Pisciotta

11. Teaming Agreement Provisions Important to Both Parties • Structure • Bi-lateral, not multi-party TAs • Affiliation rules and control issues (totality of circumstances) • Exclusivity with respect to RFP (more important for prime) • Responsibilities for expenses • Protection of confidential and proprietary information • Separate NDA (need not expire with the TA) • Specify IP ownership for individual and joint products • Representations and Warranties: authority, capability, ownership • Covenants: Ethical conduct and OCI obligations • Law and disputes (under the TA, not the customer contract) • Compliance with law • Governing law • Dispute resolution and forum • Mutual protection • Non-solicitation provisions • Termination (automatic, for cause and for convenience) • Mutual indemnities and limitations on liability Aileen A. Pisciotta

12. Teaming Agreement ProvisionsImportant to Prime Contractor Parties • Maintenance of control • Single point of contact and control over the procurement as well as performance • Ability to terminate subcontractor if products or services not provided on terms proposed • Discretion to respond to customer demands in the contract • Add other subcontractors if and when necessary • Obtain clear subcontractor commitments to: • Assist with proposal development and marketing • Provide timely, accurate and complete information reasonably requested regarding capabilities • Execute subcontract if contract is awarded Aileen A. Pisciotta

13. Teaming Agreement ProvisionsImportant to Subcontractor Parties • Protection of role • Clear and exclusive task order identification and allocation • Limitations on inclusion of additional team members • Obtain clear prime contractor commitments to: • Include subcontractor share and qualifications in proposal • Facilitate approval of sub by customer • Negotiate subcontract on award • Promptly and accurately share information • Relevant policies requiring compliance • Changes in status of contract and customer requirements • Conflicts of interest Aileen A. Pisciotta

14. Beware! • Exogenous terms (e.g., controlling obligations in mandatory contract attachments) • Additional terms to be included in subcontracts • FAR clauses • Flow downs from prime contract • Ostensible Subcontractor Rule • Limitations on Subcontracting Rule (small business set asides) • Independent contractor issues generally (1099 vs. W-2) • IRS : multi-factor test (behavioral, financial, relationship) • Many states: “ABC” test • No control of means of performance (only result) • Contracted service is outside scope of normal business operations • Contractor is in business to provide the service Aileen A. Pisciotta

15. Contact Aileen A. Pisciotta Executive Counsel, PLC apisciotta@exec-counsel.com www.linkedin.com/in/apisciotta www.exec-counsel.com 202-644-0101 or 703-914-2635