Teaming Agreements and Subcontracts

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Presenter. Bill WelchChair of General Counsel, P.C.'s Government Contracts Practice Group17 years of government contracts law experienceWork extensively with businesses selling to governmentsfederal, state, and local. General Counsel, P.C.. Offices in McLeanFounded 200414 attorneysFocused on

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Teaming Agreements and Subcontracts

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1. Teaming Agreements and Subcontracts General Counsel, P.C. Seminar Series June 22, 2010 © 2010 General Counsel, P.C.

2. Presenter Bill Welch Chair of General Counsel, P.C.’s Government Contracts Practice Group 17+ years of government contracts law experience Work extensively with businesses selling to governments—federal, state, and local

3. General Counsel, P.C. Offices in McLean Founded 2004 14 attorneys Focused on representing businesses and business owners Serve as outside general counsel to small- and medium-sized businesses

4. General Counsel, P.C. Practice Areas Corporate Government Contracts Labor and Employment Litigation Intellectual Property Estate Planning Probate Representation Non-Profit

5. Agenda Traditional Contracting Arrangements Teaming Agreements: pre-proposal; bind together the team that would perform on the government contract subcontracts: post-award; link a prime contractor to its subs; a subcontract is usually based on a Teaming Agreement GSA Contractor Teaming Arrangements 5

6. Teaming Agreements Pre-bid assembly of a team to perform for the government customer 6

7. What is a teaming agreement? A “Contractor Team Arrangement” (“CTA”), as defined by the Federal Acquisition Regulations (FAR Subpart 9.6) occurs when: A potential prime contractor agrees with one or more companies to have them act as its subcontractors under a specified Government contract or acquisition program; or Two or more parties agree to form a new entity such as a partnership or joint venture to act as a potential prime contractor for a specific federal procurement. 7

8. What is a teaming agreement? Provides the government customer with an integrated plan to deliver products or services to the government customer Teaming Agreements usually form prior to submission of proposal, but could form at any stage of contracting 8

9. How to Identify Teaming Partners Networking with large government contractors Most large government contracts require the prime contractor to subcontract to small or disadvantaged businesses Networking with the government customer Prime contractors have incentive to team with subcontractors that the customer identifies as key Look for a contractor who would supplement your offering 9

10. Avoiding Antitrust Liability Don’t try to team with your competitors to control the market or attempt to fix your prices. The Department of Justice can investigate any attempts to stifle competition or fix prices. 10

11. Teaming Agreements vs. Mentor-Protege Relationhips Teaming Agreements are specific to one bidding opportunity Mentor-protégé relationships are not specific to one bidding opportunity 11

12. Content of a Teaming Agreement Teaming Agreements are binding contracts and can be enforced in court Put Teaming Agreements in writing 12

13. Content of a Teaming Agreement Every Teaming Agreement should contain: traditional contract format and formalities; the purpose of the agreement; whether the agreement is exclusive or non-exclusive the duties of the prime contractor; the duties of the subcontractor; confidential information protection provisions; dispute resolution provisions; and a termination provision. 13

14. Purpose of a Teaming Agreement To designate a team leader who will act as the prime contractor for a particular contract; To identify the products or services that each party will provide, being as specific as possible; To assign duties and responsibilities for preparing the proposal (and to assign responsibility for costs of preparing the proposal); and To impose a duty on the parties to negotiate in good faith toward the execution of a subcontract if the proposal is successful. 14

15. Exclusivity Teaming Agreements are non-exclusive unless otherwise stated A subcontractor may enter into agreements with multiple primes A prime may enter into agreements with multiple teams Occasionally, Teaming Agreements include exclusivity provisions such as: a sub may not participate on more than one team; or a prime agrees that it will not participate on more than one team for the procurement. 15

16. Duties of the Prime Contractor Under a Teaming Agreement, a prime contractor typically will: make the decision to bid or not to bid; be responsible for completing and submitting the proposal on a timely basis; be responsible for maintaining contact and negotiating with the government customer where appropriate; and agree to assume the responsibilities of a prime contractor under the federal government contract, upon award. 16

17. Duties of the subcontractor Under a Teaming Agreement, a subcontractor typically will: assist as directed in the preparation of a proposal (may be required to submit a separate proposal); and refrain from contacting or negotiating with the government customer unless requested by the team leader. 17

18. Mutual Duties of the Parties: Good Faith Negotiation of a subcontract Both parties should agree to negotiate in good faith toward a subcontract, if the team is awarded the contract. Teaming Agreement should specify some of the terms that will be included in an eventual subcontract Pricing terms are commonly specified For goods, should include price and expected quantity. For services, should include hourly rates or other fixed rates on a not-to-exceed basis Define who has authority to lower rates in negotiation with the government customer subcontractor’s Statement of Work is also commonly specified Don’t be too detailed; retain flexibility for both parties to agree on subcontract terms once the proposal has been accepted by the government customer 18

19. Confidential Information Protection Parties negotiating Teaming Agreements should protect their proprietary information. The parties may enter a nondisclosure agreement (“NDA”) while negotiating the Teaming Agreement and then attach the NDA to the Teaming Agreement. The parties may also enter a nonsolicitation agreement to prevent the hiring of their employees/contractors by their potential teammate. Alternatively, the parties may put nondisclosure and/or nonsolicitation provisions directly into the Teaming Agreement. 19

20. Additional Terms Dispute resolution provisions Termination provisions 20

21. Subcontracts Defining the relationship between two government contractors 21

22. Drafting a Subcontract Subcontracts are binding contracts and can be enforced in court Put subcontracts in writing Decide which party will draft the subcontract Usually, the prime contractor makes the first draft Prime contractor is usually flexible on changes if the subcontractor explains why the change is necessary 22

23. Reviewing a Subcontract Read the entire contract and make notes on areas that you don’t understand or don’t believe are appropriate. Have an attorney experienced in federal government contract law review the subcontract and make recommendations on changes or notes on provisions that could be problematic, need changing, or are missing. Because the terms of federal government contracts involve very specific statutes and regulations, a generalist attorney may not be able to spot all of the issues with your subcontract. Discuss with your attorney your notes and concerns and your attorney’s notes and recommendations. 23

24. Content of a Subcontract Every subcontract should contain: traditional contract format and formalities; the purpose of the agreement; the type of contract; payment provisions; statement of work; intellectual property ownership provisions; changes provisions; dispute resolution provisions; and termination and default provisions; and option provisions. Construction contracts have other important terms. 24

25. “Flow-down” Provisions Provisions in a subcontract are known as “flow-down” provisions if they impose the same duties on the subcontractor that the government imposed on the prime contractor in the prime contract Provisions do not automatically flow down—the parties must agree to include them in the subcontract 25

26. “Flow-down” Provisions Federal law mandates that prime contractors put certain flow-down provisions in subcontracts of a particular value or duration Contract Cost and Accounting clauses such as the Audit clause (FAR 52.215-2) Labor clauses such as Equal Employment Opportunity clause (FAR 52.222-26) Ethics clauses such as the Contractor Code of Business Ethics (FAR 52.203-13) Certain data rights clauses Though these are mandatory clauses, they do not relate directly to the subcontractor’s performance A subcontract is enforceable even if it omits a mandatory flow-down The flow-down provisions most important to prime contractors are not mandatory 26

27. “Flow-down” Provisions Why not flow-down all the prime’s clauses? It runs the risk of creating significant internal conflicts and/or rendering the subcontract incoherent. It could give the subcontractor rights that they should not have or you don’t want them to have (e.g., limitation on subcontracting, unaltered disputes clause, payments clause, and others). No reasonable subcontractor would/should accept it. 27

28. The Type of Contract Fixed Price Time and Materials Cost Plus Indefinite Delivery/Indefinite Quantity (“ID/IQ”) that allows issuance of task orders 28

29. Payment Provisions The subcontract should specify exactly when the subcontractor gets paid Types of payment clauses: Net 30 or net 45 (not common on federal government contracts, except with the very largest primes) Pay-when-paid (most common) Pay-when-paid clause should include specific time for payment, such as “within 10 days of the prime’s receiving payment from the Government for the subcontractor’s work” 29

30. Statement of Work Is the scope of work or statement of work clearly identified and agreeable to both parties? Is the scope of work clear enough to be followed and/or enforced? 30

31. Intellectual Property Rights Intellectual property rights provisions govern who owns intellectual property generated under a federal government contract Prime contracts typically require that the government own all intellectual property generated under that contract The prime contractor typically wants to make this a flow-through provision because it will be in breach of the prime contract if it does not deliver all intellectual property rights to the government The subcontractor typically wants to retain ownership of intellectual property it generates 31

32. Changes Provisions Changes provisions govern how the other terms of the subcontract may be modified The prime contract may be modified unilaterally by the government, within the general scope of work The prime contractor typically wants this to be a flow-through provision so it can pass the government’s changes in the prime contract through to the subcontractors If the subcontractors don’t perform on the changed requirements, then the prime contractor is in breach of its contract with the government The subcontractor typically wants to require mutual agreement for any changes so it can prevent negative changes to the subcontract The Commercial Item/Services Clause is an exception 32

33. Dispute Resolution Provisions Dispute resolution provisions govern how any dispute arising under the contract will be resolved by the parties The prime contract requires that, if the prime becomes involved in a conflict with the government: the prime must follow specific procedures; and the prime must continue to perform on the contract. The subcontract should also include procedures for resolving a dispute between the prime and the subcontractor that does not involve the government. Specify litigation or arbitration. Because of this requirement, the dispute resolution provisions cannot flow-down unmodified to the subcontract. 33

34. Dispute Resolution Provisions The prime contractor typically wants to include the flow-down provisions to avoid its own breach of the prime contract if: the subcontractor does not cooperate with the required dispute resolution procedures if it is involved in a dispute with the government; or the subcontractor stops performing on the contract because of a dispute with the government or the prime contractor. The subcontractor ideally wants the option to stop performing in the face of a dispute. 34

35. Termination and Default Provisions Termination provisions govern how and when the subcontract may be terminated. Default provisions specify the procedure that the parties must follow if one party fails to perform its duties under the subcontract. Uncured default generally leads to termination. The prime contract generally permits the government to terminate the prime contract unilaterally, in whole or in part. “Termination for convenience” is a unique right in the contracting world. The prime contract also permits the government to terminate the prime contract for default, but generally allows the prime contractor the opportunity to cure the alleged default. 35

36. Termination and Default Provisions The prime contractor typically wants to flow-down the termination for convenience and default provisions to the subcontract to: avoid paying the subcontractor for work on a terminated contract; and require the subcontractor to cooperate in the remedy of any alleged default. The prime contractor also typically wants the subcontract to prohibit the subcontractor from recovering damages for termination unless the prime contractor has received a termination settlement or litigation award. The subcontractor ideally wants the option to get paid regardless of the status of the prime contract. As a practical matter, the subcontractor should not allow the prime contractor to have discretion to impose a termination for convenience unless the government has imposed it on the prime contractor. 36

37. Option Provisions Option provisions govern whether the contract term is extended for an additional period Prime contracts typically are for one year with four option years The prime contractor typically does not want to make this a flow-through provisions because it wants the ability to switch subcontractors each year The subcontractor typically wants this to be a flow-through provision because it wants to stay on the project for the length of the prime contract 37

38. Additional Provisions Other possible/recommended flow-down provisions: Classified information and/or security requirements; Cost and pricing data requirements (TINA) Delay (especially in a construction contract) Most favored customer clause (in a MAS Schedule subcontract) Organizational Conflicts of Interest Limitation of Funds/Limitation of Costs 38

39. GSA Contractor Teaming Arrangements Bringing the teaming model to the GSA Schedule 39

40. CTAs Defined A GSA Contractor Teaming Arrangement (“CTA”) is understood as: An agreement between two or more parties to form a partnership, joint venture, or other cooperative agreement to provide an integrated solution for the Government customer through the use of GSA’s Multiple Award Schedule Contract Program. Each participant must hold an existing GSA schedule contract. 40

41. Differences Between CTAs and Traditional Teaming Agreements Traditional Teaming Agreement GSA Contractor Teaming Arrangement Is followed by a subcontract One prime, one lead Rates dependent on prime Only prime contractor is in privity with the government Is not followed by a subcontract May be multiple lead Rates subject to GSA Schedule All members of the team are in privity with the government 41

42. Why Use a CTA? Government customers may prefer the streamlined process of procurement from the GSA Schedule A CTA allows small contractors to offer complementary services to fulfill all the customers needs for a project (e.g., offer hardware, software, and help desk services) The CTA team can effectively compete with larger contractors 42

43. Responding to a Request for Quotation as a CTA A CTA may be used by a group of GSA Schedule holders to respond to a Government Request for Quotation requiring the use of a GSA Schedule contract. The CTA should be submitted to the customer at the simultaneous with the quote, allowing the customer to view the quote in the context of the CTA. The quote should include each member of the CTA and each member’s MAS contract number. 43

44. Drafting a CTA CTA must be in writing GSA provides a template, but will need additional drafting and negotiation. In addition to all the elements of a traditional teaming agreement, a GSA CTA should focus on team structure, allow flexibility in formulating quotes (need not include everyone), and address invoicing requirements in detail. 44

45. Drafting a CTA The CTA is the only document that guides the parties relations for the work. CTAs are more complicated agreements than traditional teaming agreements because they govern: performance, not just submission of a proposal; and billing/payment issues that are complicated by the fact that there are multiple lead contractors and all team members are in privity with the government. 45

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