Often I hear the terms Teaming Agreement vs Joint Ventures used interchangeably, however they are quite different. Joint Ventures involve two companies partnering to form a new entity. Teaming involves two separate companies partnering on specific bid(s) or proposal(s). One is obviously a longer term commitment than the other.
When To Team..
If you are a new business that does not have past performance, teaming with a seasoned company is a good way to build it. Participating on a government contract as a subcontractor gives you the exposure and experience, while receiving guidance from an experienced contractor. Teaming may also be beneficial when together two firms can provide a solution.
What’s In A Teaming Agreement?
The decision to team might be the easy part, however establishing a proper Teaming Agreement requires negotiation on both sides.
Some areas to address in a proper Teaming Agreement are:
- Define specific roles and responsibilities of sub and prime contractor
- References specific bid opportunity where it is applicable
- Documents confidentiality
- How the profits will be split
- Payment terms
- Documents guarantees of work percentage for subcontractor (if any)
- Establishes whether or not the prime is required to subcontract the work to the sub (and whether or not it is exclusive) if the bid is awarded
- Prime contractor establishes flow-down of clauses, if the bid is awarded
- Specifies prime and sub roles in responding to the solicitation(s)
When to Joint Venture
If you are interested in entering a longer term partnership with a firm, you may want to enter into a Joint Venture Agreement. A Joint Venture Agreement is kin to a business marriage. It is a separate entity that acts on its own, separate from your individual company. As such, it can pursue contracts and share in profits and losses. A Joint Venture can offer several benefits such as improving the odds of winning a contract, allowing the minority JV member to exert more control over contract performance than they could in a sub/prime relationship. Also, a JV may avoid any perceived stigma of the subcontractor role, and receive favorable tax treatment. Some drawbacks include joint liabilities to third parties, and the lead contractor giving up substantial control.
I recommend consulting an attorney, but..
A proper JV should include (but not limited to) the following:
- Purpose of the Joint Venture
- How the profits will be split
- Responsibilities of its members
- Specify at least 51% ownership of the JV by the small business (or 8(a), SDVOSB, WOSB, or HUBZone) firm. Also must be managing member
- Record keeping and reporting responsibilities
The Bottom Line.
A Teaming vs Joint Venture Agreement can jump start or reinvigorate your government contract opportunities. However, it is important to pay attention to the specifics to ensure a win-win for all. The agreement(s) should address concerns upfront as much as possible, be honest, be realistic, and be sure to keep the communication lines open.
