Teaming Agreements vs Joint Ventures

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.

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Province Consulting Group, Inc.

Province Consulting Group specializes in positioning small and mid-sized firms in successful entry and growth within the government and commercial marketplace. We understand the complex and unique challenges that small and emerging businesses face when trying to navigate the govcon space.