Teaming Agreements: When the Best Team May Not Be Enough

Contractors and designers know that assembling the right team is vital to any construction project’s success.  Savvy project owners also know this.  For example, a project owner may ask a design-builder to submit information about its team of designers and trade contractors, including their track record of successfully working together. 

Those same team members may contribute significant resources in preparing the proposal and participating in interviews.  This effort, of course, gives rise to an expectation that, if awarded the contract, the same team will work together on the project.  To realize these expectations, the parties should define their roles and responsibilities in a written teaming agreement—and address those aspects of their relationship that may be left for later negotiation. 

What Is a Teaming Agreement?
A teaming agreement is an agreement in which team members set out their relationship and responsibilities in pursuing award of a contract.  More specifically, teaming agreements define the rights, remedies and responsibilities of the team members during proposal preparation and lay the groundwork for subsequent agreements after award. 

As such, a teaming agreement is, to some extent, an “agreement to agree.”  If not drafted properly (or if there is no written agreement at all), a teaming agreement may not be enforceable. 

What Issues Should Be Addressed in the Teaming Agreement?
While not an exhaustive list, teaming agreements should, at a minimum, include the following features. 

• Recitals.  The recitals should, among other things, generally describe the parties’ relationship, the specific contract being pursued, how all parties will contribute to and benefit from the agreement, and include a statement reciting each party’s unique capabilities and the team’s ability to provide the owner with the best combination of performance, cost and delivery. 
• Responsibilities.  This section should describe each party’s obligations both before and after contract award.  These provisions should divvy up proposal preparation responsibilities and explicitly state who will submit the proposal and attend any interviews.  In addition, the parties should describe how they will proceed after award.  For example, team members could agree to negotiate but disclaim any obligation to enter into a later binding agreement.  One of the most heavily-litigated issues arises when team members fail to address their respective obligations after award.  
• Payment.  If a team member will receive compensation for its pre-award contributions, the agreement should include the payment amount and terms.  In addition, on design-build projects, owners will occasionally offer a stipend to partially defray proposal preparation costs for unsuccessful teams.  The teaming agreement should state how any stipend payments will be divided among team members. 
• Proposal Preparation Costs.  Depending on the nature of the procurement, there may be significant proposal preparation costs.  These costs should be allocated or, if each team member intends to bear its own costs, the teaming agreement should expressly state that no team member will have any right of reimbursement for any reimbursement or compensation from any other team member for costs incurred in pursuit of the contract.  
• Legal Relationship After Award.  Team members also should state their intended legal relationship following award.  Examples of legal relationships include prime-subcontractor, joint-venture, and limited liability company (“LLC”) arrangements.  To the extent the parties have agreed on the legal terms of those arrangements, they should consider attaching draft copies as exhibits to the teaming agreement.  They also should list any conditions or terms that remain open for later negotiation.  For example, a prime contractor and subcontractor team may attach a draft subcontract to the teaming agreement, leaving price, schedule, and other terms open for negotiation after award.  
• Duration and Termination.  The duration of the teaming agreement and its eventual termination also should be addressed.  If the team intends to pursue multiple contracts or multiple phases under a single contract, the teaming agreement should identify those contracts or phases.  Similarly, the agreement should have a fixed end date that is based on the occurrence of certain conditions.  Those conditions may include failure to receive award, failure to execute the contract being sought, and failure to execute a subsequent subcontract, joint venture, or LLC agreement.  It is also important that the parties agree that the teaming agreement terminates upon execution of the subsequent agreement related to performance of the contract.  Failure to do so may result in substantial legal uncertainty, as a court could hold that both the teaming agreement and subsequent contract govern the parties’ legal relationships during the project.  
• Confidential and Proprietary Information.  Proposal preparation often requires team members to share confidential and proprietary information. The teaming agreement should address protection of this information.  
• Exclusivity.  Team members should address whether any of them will be permitted to submit competing proposals, collaborate with other competing teams, submit their own competing proposals, or, if the team is not awarded the contract, perform work or services for the team that was awarded the contract.  Similarly, the teaming agreement should state whether the parties are free to pursue other unrelated contracts during the teaming agreement’s term.  
• Joint Development of Intellectual Property.  If, during preparation of the proposal, the parties develop a new invention, process, or technology, the teaming agreement should state who owns the related intellectual property and the rights of other team members to use that intellectual property going forward.  
• Dispute Resolution.  Although team members may be full of optimism at the beginning of their relationship, there is always potential for disputes.  The teaming agreement should anticipate such disputes and provide for applicable law and a forum for resolving them.  

Depending on the circumstances of a particular procurement, there may be additional provisions that should be considered. 

In sum, a well-drafted teaming agreement will keep team members focused on winning the contract and help avoid the pitfalls that beset those who fail to take this critical step when joining forces to compete for contracts.

“Teaming Agreements:  When the Best Team May Not Be Enough” was originally published by the Daily Journal of Commerce on February 17, 2017.