Teaming with larger companies, or even with other small companies, is a great way for small businesses to participate in procurement opportunities. However, teaming agreements have very particular characteristics, and small business team members need to know how to protect their interests.
Teaming agreements set the ground rules for proposal preparation and expire once a contract has been awarded. Thus, they serve a very different purpose than subcontracts and have different terms. Teaming agreement terms also vary in crucial ways depending upon whether the team is structured as a joint venture or as a prime/sub arrangement. Particularly in the case of a prime/sub arrangement, the interests of each team member under the agreement will differ depending upon the role each member plays.
Beyond the four corners of the agreement, small businesses have to be aware of how a teaming agreement may be viewed by the SBA. Under SBA affiliation rules, members of a joint venture team are always "affiliated." That means that the total revenues/employees of all team members combined will be used to measure the compliance of each small business team member with SBA size requirements. if a team lead member in a prime/sub arrangement exercises significant control over a sub team member, the arrangement may be deemed to be a joint venture subject to the affiliation rules. An unwary company under either a joint venture or prime/sub arrangement could unwittingly loose its small business qualification.
Relaxed affiliation rules apply in certain cases, including for 8(a) proteges in a joint venture with a larger company mentor. However, any such joint venture has to be pre-approved by the SBA and has to follow particular guidelines.
Other trip-ups and traps lurk in teaming arrangements for small business set asides. Under the Ostensible Subcontractor Rule a large company proposed as a subcontractor that either performs a vital role on the team or on whom the small business prime is unusually reliant, may be deemed to be the real prime. Under Limitation on Subcontracting Rules, 8(a)s, SDVOSBs and HUBZones acting as primes in setaside procurements are subject to limits on the amount of work that can be subcontracted, including in some cases the mandate to expend 50% of total personnel costs on their own employees. This requirement cannot be satisfied with 1099 contractors.
The attached Powerpoint slides, from a presentation recently made to the AIMS Working Group and earlier to the Market Intelligence Working Group, reviews these issues. I would be happy to provide more information or to answer questions.
Executive Counsel, PLC