Teaming agreements in the construction world, also referred to as teaming arrangements, are agreements between two or more independent companies to combine their resources, abilities, and knowledge, for the purpose of obtaining and, if successful, performing a competitive bid construction contract. If done properly, teaming agreements can assist these companies in becoming more competitive in the bidding process and, ultimately, win big construction contracts, including those awarded by the federal government.
Types of Teaming Agreements
If two or more companies are considering teaming-up, the companies must first decide what type of teaming agreement best serves their interests. Teaming agreements usually fall within two basic categories: a “joint venture” agreement or a “prime contractor-subcontractor” agreement.
A. Joint Venture Agreement
A joint venture agreement is created when two or more companies form a new business entity to act as a prime contractor. That joint-venture arrangement involves shared control, shared property, shared profits, and shared liability.
A joint venture agreement allows contractors, who may not have the bonding capacity or financial security, to meaningfully participate in the procurement of larger construction contracts. However, it is worth mentioning that each partner in the joint venture will be liable for all losses or damages. In addition, although a joint venture may be composed of qualified, licensed companies, it is a distinct organization that must itself be properly licensed in the state of Florida, in order to avoid claims of unlicensed contracting. § 489.521(2)(a) Fla. Stat.
B. Prime Contractor-Subcontractor Agreement
A prime contractor-subcontracor agreement is created when a prime contractor agrees with one or more companies to have that company act as its subcontractor(s). Unlike a joint venture agreement, the prime contractor-subcontractor agreement does not involve shared control, shared property, shared profits, and shared liability.
The prime contractor will be solely responsible for project completion and contract performance with the owner. The subcontractor will remain independent from the prime contractor and is only responsible for completing a portion of the project, as outlined in the subcontract with the prime contractor.
Key Provisions of an Effective Teaming Agreement
Once the type of teaming agreement is selected, the parties must focus on the key provisions to include. Although these provisions and the complexity of the teaming agreement vary depending on the particular construction project, the parties should consider including the following key contract provisions:
- Purpose and Duration—identify the objective of the contract, reasons for forming the team, relationship of the parties, the procurement or contract sought, and the consideration each party is providing;
- Division on Labor/Work Scope—identify exactly what work each party will perform in both the proposal and competition stage, and post-award, contract stage;
- Payment—identify how and when the team members will be paid for their respective work;
- Exclusivity—state explicitly whether the team members may seek the same contract or procurement outside of the teaming agreement;
- Proposal Costs—identify how the team members will be responsible for the proposal costs;
- Confidentiality—identify the scope and requirements of whether team members may share confidential or proprietary data;
- Choice of Law/Dispute Resolution—identify what law applies to the teaming agreement and all claims arising out of it, as well as where and how disputes will be resolved;
- Regulatory/Compliance Issues—state that each team member must comply with all applicable laws, codes and regulations;
- Insurance and Indemnification—identify which entity will procure the insurance for the work, the type of insurance, dollar amount of the insurance, and how those costs will be borne by each of the team members;
- Limitations of Liability—identify whether the parties are limiting liability to one another;
- Taxes—identify the tax consequences and their respective obligations to pay taxes; and
- Assignments—identify whether the parties can assign their rights and obligations under the agreement.
Consequences of an Improperly Drafted Teaming Agreement
Teaming agreements that are not reasonably complete, definite, and clear, may be deemed unenforceable. For example, Florida courts have found teaming agreements to be “agreements to agree,” and, therefore, unenforceable, when the “agreement” states that the parties will enter into negotiations for a subcontract after the prime contract is awarded. See Alpha Data Corp. v. HX5, L.L.C., 139 So.3d 907 (Fla. 1st DCA 2013) (holding that the teaming agreement was an agreement to agree because it contained a provision that the prime contractor would “execute its best effort to negotiate a subcontract agreement…within 30 days after the contract award”).
Given the complexities of teaming agreements and the case law cited above, it is important to have an experienced construction lawyer draft a teaming agreement to ensure it clearly outlines the arrangement and is legally enforceable.
Authors:
- James O. “Joby” Birr, Esquire
- Melissa Murrin, JD Candidate 2021