AILEEN A. PISCIOTTA, ESQ. EXECUTIVE COUNSEL, PLC THE ASBC AIMS WORKING GROUP JULY 7, 2010 Major Issues in Teaming Agreements

Summary July 7, 2010 Aileen A. Pisciotta 2 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

What is Teaming July 7, 2010 Aileen A. Pisciotta 3 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.

Purpose of a Teaming Agreement (Different from a Subcontract) July 7, 2010 Aileen A. Pisciotta 4 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

Limits of Teaming July 7, 2010 Aileen A. Pisciotta 5 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.

Joint Venture Prime/Sub July 7, 2010 Aileen A. Pisciotta Teaming Agreement Party A Co-Prime Customer Party B Co-Prime Teaming Agreement Party A Prime Customer Party B Sub 6 Teaming Agreement Models

Joint Venture Model July 7, 2010 Aileen A. Pisciotta 7 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 Teaming Agreement Party A Co-Prime Customer Party B Co-Prime

Prime/Sub Model July 7, 2010 Aileen A. Pisciotta 8 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. Teaming Agreement Party A Prime Customer Party B Sub

SBA Affiliation Rules July 7, 2010 Aileen A. Pisciotta 9 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

Exceptions to Affiliation Rules for Small Businesses July 7, 2010 Aileen A. Pisciotta 10 Mentor/Protégé (for 8a companies)  13 CFR – 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

Teaming Agreement Provisions Important to Both Parties July 7, 2010 Aileen A. Pisciotta 11 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

Teaming Agreement Provisions Important to Prime Contractor Parties July 7, 2010 Aileen A. Pisciotta 12 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

Teaming Agreement Provisions Important to Subcontractor Parties July 7, 2010 Aileen A. Pisciotta 13 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

Beware! July 7, 2010 Aileen A. Pisciotta 14 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

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