Teaming Arrangements under the FAR
Under Federal Acquisition Regulation (FAR) 9.6, a contractor teaming arrangement is when:
- Two or more companies form a partnership or joint venture to act as a potential prime contractor; or
- A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified government contract or acquisition program.
Both of these arrangements have the potential to help small businesses increase the number of solicitations they can confidently bid on, but both also come with their own set of limitations to consider.
Small Business Set-Asides
The government regularly sets aside contracts dedicated exclusively to small businesses to provide the opportunity for competition between smaller companies; in these situations, larger corporations are excluded from the bid process. However, sometimes, small businesses are unable to compete for the contract alone due to their size and resources. This potential problem is where teaming arrangements come into play for small businesses trying to increase their involvement with government contracts. The Small Business Administration (SBA) regulations and the FAR provide small business contractors with several means to conduct a teaming arrangement that allows them to be competitive for the contract from the start. These different means to compete include ways to team up with other small businesses or even larger corporations. The most common arrangements are joint ventures and teaming agreements.
The use of these teaming arrangements does not come with its potential risks for contractors. Incorrect teaming arrangements can lead to violations of the SBA affiliation rules—which the SBA uses to analyze the relationships between a party competing for a small business set-aside contract and its partners to determine if they conform to the procurement’s applicable size requirements. Even the mere appearance of affiliation can lead to a small business spending significant time and money merely to prove they fall within the requirements for the agency to consider them for the contract.
Considerations for Joint Ventures vs. Teaming Agreements
Teaming arrangements can be a valuable tool for small businesses to use—allowing businesses to pool resources, management abilities, and technical knowledge. All of these elements help make a small business more competitive in the bidding process. However, if not done properly, the use of teaming arrangements can lead to adverse consequences with regard to their ability to satisfy the size standards of the set-aside contracts.
As mentioned above, the FAR recognizes two distinct forms of teaming arrangements—joint ventures and teaming agreements. These arrangements can be mutually beneficial to the small business and the government, but also can pose challenges to small businesses and their hopeful partners.
When competing for a small business set-aside, small businesses should only use a joint venture (JV) in limited circumstances, as regulations presume that JV members are affiliated for size determination purposes (unless an exception applies).
Affiliation can be a significant concern for JVs because the parties are automatically affiliated with each other in regard to the contract’s performance. If the businesses still want to be able to compete for set-asides, a small business should only enter a JV with another business when the combined size does not exceed the size standard. However, the presumption of affiliation is lifted for JVs formed under SBA’s All Small Mentor Protégé Program or the 8(a) Mentor Protégé Program.
The SBA authorizes small businesses to subcontract a portion of their set-aside contracts to large and small companies unless specifically prohibited by statute, regulation or solicitation. So, small businesses regularly take advantage of this ability by using teaming agreements. Teaming agreements allow small businesses to maintain their small business size standard while obtaining subcontracting assistance from other small businesses or even large corporations.
Unlike JVs, members of the teaming agreement will not be presumed to be affiliated with each other based solely on their agreement. But, small business should ensure that they team only with parties that do not raise a significant appearance of affiliation. Thus, small businesses should avoid teaming agreements with parties that:
- Share common ownership or control.
- Have identical business and economic interests.
- Would be deemed to form an “ostensible subcontractor” relationship based on tasks being performed by the prime contractor.
Looking for More Information on How to Structure Effective Teaming Relationships?
Don’t miss Richard Arnholt and Todd Overman presenting at the Florida GovCon Summit 2018. Their presentation will offer strategic guidance to help small businesses maximize their position within teaming relationships. The Florida GovCon Summit 2018 will be held February 28-March 1 at The Ballroom at Church Street in Orlando, Florida.