It is not at all unusual for contractors to compete for federal support services acquisitions under teaming agreements. While these teaming agreements are akin to the joint ventures often formed by construction companies to compete for a major project, typically they are structured to avoid them being construed as joint venture arrangements. The reason is a simple one: for purposes of small business size status, joint venturers are deemed to be “affiliated,” i.e., considered as a single entity for size determination purposes, by this putting at risk ability to qualify as small under the averaged annual receipts size standards used in services acquisitions. See P & B Services, Inc. v. Cardenas, 525 F. Supp. 1289, 1291 (D.D.C. 1981).
Subpart 9.6 of the Federal Acquisition Regulation (FAR), 48 C.F.R., ch. 1, recognizes that teaming agreements enable offerors to complement each other’s capabilities, and to offer better performance, deliveries, and cost structures, FAR 9.602(a), but there is no FAR guidance on just what is required to avoid a teaming agreement being construed as a joint venture. As it turns out, there are regulations and decisions that explain just what is, or is not, allowed. The regulations are the Small Business Administration’s (SBA’s) Small Business Size Regulations, 13 C.F.R., part 121, and the decisions are those issued by SBA’s Office of Hearings and Appeals. Here we will explore the FAR guidance, the size regulations, and the decisions of the Office of Hearings and Appeals.
Agencies must recognize teaming agreements, if they are fully revealed in competitive proposals, or before the teaming agreement becomes effective. FAR 9.603. Indeed, agencies point out that vendors can enter into teaming agreements to justify bundled support services requirements as reasonable restrictions on available competition. See, e.g., LaQue Center for Corrosion Technology, Inc., B-245296, Dec. 23, 1991, 91-2 CPD ¶ 577, at 4. Teaming agreements cannot limit agencies’ rights to decide the responsibility vel non of the proposed prime contractor based on the teaming agreement, to limit agencies’ rights to review and consent to proposed subcontracts, or to limit agencies’ rights to hold the prime contractor fully responsible for contract performance, despite that particular tasks are subcontracted under a teaming agreement. FAR 9.604. Washington-Structural Venture, B-235270, Aug. 11, 1989, 89-2 CPD ¶ 130, at 9, suggests that a proper teaming agreement must vest control and daily management in the proposed prime contractor, and that the proposed prime contractor must be solely responsible for performance.
Parties that successfully team to “chase” a particular services acquisition do so under a well-written teaming agreement that defines each party’s role in the proposal preparation process, and they submit a competitive proposal that clearly defines separate roles for the proposed prime contractor and for the proposed subcontractor(s). If teaming arrangements are ineffective, they are so under the SBA’s regulatory definition of “affiliation” through contractual relationships. These are the regulations:
Affiliation generally arises where one concern is dependent upon another concern for contracts and business to such a degree that its economic viability would be in jeopardy without such contracts/business.
13 C.F.R. § 121.401(k) (1995).
The determination whether an entity is a joint venture is based upon the facts of the business operation, regardless of how the business operation may be designated by the parties involved. An arrangement to share profits/losses proportionate to each party’s contribution to the business operation is a significant factor in determining whether the business operation is a joint venture.
13 C.F.R. § 121.401(k)(1) (1995).
An ostensible subcontractor which performs or is to perform primary or vital requirements of a contract may have such a controlling role that it must be considered a joint venturer affiliated on the contract with the prime contractor. In determining whether subcontracting rises to the level of affiliation as a joint venture, SBA considers whether the prime contractor has unusual reliance on the subcontractor.
13 C.F.R. § 121.401(k)(4) (1995).
Sorting out just what is affiliation under a teaming agreement is a complex task. Vendors are not held to have submitted false certifications of small business size status when there is a teaming agreement in place, even if it does not survive scrutiny by the Office of Hearings and Appeals, just as agencies are allowed to make awards under FAR 19.302(g)(2) on SBA Regional Office size decisions, although the decision is reversed on appeal. Verify, Inc., B-244401.2, Jan. 24, 1992, 92-1 CPD ¶ 107, at 6.
Joint venture disclaimers in the teaming agreement will be ignored in favor of a careful review of all of the circumstances. Ideal Services, Inc., SBA No. 3317, Aug. 2, 1990. These include: (1) who will manage the contract, (2) which party possesses the background and expertise necessary for contract performance, (3) which party chased the contract, (4) the degree of collaboration in preparation and submission of the competitive proposal, (5) whether there are discrete tasks to be performed by each of the teaming partners, or whether there is instead commingling of personnel and resources, (6) the relative amount of work to be performed by each teaming partner, and (7) which party will perform the more complex and costly contract functions. D.P. Associates, Inc., No. 2719, Aug. 7, 1987. These factors are not weighed equally, and not one of them is a conclusive test of unusual reliance. Other considerations are sometimes probative of this issue. Analytical & Research Technology, Inc., SBA No. 3556, Dec. 19, 1991.
Teaming agreements must cover only a single, specific acquisition. If an agreement encompasses a continuing relationship, then the parties are considered as affiliated for size determination purposes. Team Contracting, Inc., SBA No. 3890, Mar. 9, 1994.
To survive a challenge, a teaming agreement must carefully establish each party’s role in the proposal preparation process, and must allocate to each party a share of the proposed contract. Allocation of the contract work must be made on discrete tasks, not on percentages alone. As well, the competitive proposal must define and segregate each party’s share of the contract work. Fortier and Associates, Inc., SBA No. 4055, June 27, 1995. Allocation of the contract work by discrete tasks is required to avoid a conclusion that the teaming partners are simply combining resources to carry out a specific business venture.
It is not an excuse that the contract proposed by the solicitation provides that specific task orders will be issued only when agency needs dictate. The teaming agreement must articulate a distinct role for each proposed subcontractor. Geo-Marine, Inc., SBA No. 3459, Apr. 25, 1991. Where offered key personnel are already employed by the proposed subcontractor, a failure to define and segregate each party’s share of the contract work produces the conclusion that the ostensible subcontractor has a controlling role in the enterprise. Sonex Enterprises, Inc., SBA No. 3948, Sept. 7, 1994.
Neither teaming with an incumbent contractor that no longer qualifies as small, nor proposing to hire the incumbent’s employees, contingent on contract award, is improper. But the teaming agreement must track the terms of the competitive proposal. Thus in Business Control Systems, Inc., SBA No. 3959, Oct. 20, 1994, the Office of Hearings and Appeals sustained a Regional Office decision that the incumbent contractor was only an ostensible subcontractor when it turned out that contrary to the technical proposal, in which the proposed prime contractor had offered the incumbent’s employees as contingent hires, the teaming agreement precluded the teaming partners from recruiting or hiring each other’s employees.
The proposed prime contractor must prepare and be responsible for the competitive proposal. The proposal must present the corporate capability and experience of the proposed prime contractor, not the “team.” Constant and conspicuous proposal references to the “team” will result in a finding of undue reliance. Caliber Associates, Inc., SBA No. 3412, Feb. 1, 1991.
It is not improper for the proposed subcontractors to contribute to the proposal effort, where these contributions are limited to discussion of discrete tasks allocated to the subcontractors. Laser Power Technologies, Inc., SBA No. 3036, Jan. 5, 1989. Neither is it wrong for employees of the incumbent contractor to work on the competitive proposal, if the work is done after hours and without compensation, trying to preserve their jobs after termination of the current contract. Fiore Industries, Inc., SBA No. 3401, Jan. 11, 1991.
The need to rely on the specialized expertise of several proposed subcontractors does not alone result in improper affiliation. Technology Management & Analysis Corp., SBA No. 3723, Jan. 11, 1993. Nonetheless, each employee offered for contract performance must be assigned independent tasks; employees may not be commingled. Health Systems Research, Inc., SBA No. 3398, Jan. 8, 1991. Treatment of nonmanagement employees as a joint resource for contract performance evidences undue reliance on subcontractor resources. Omnisec, International, SBA No. 3761, Apr. 8, 1993.
The proposed prime contractor must totally control contract performance, including those tasks allocated to subcontractors. A proposed subcontractor must not have a role in contract management, particularly, a role where subcontractor employees are the key personnel to interact with agency technical managers. Metters Industries, Inc., SBA No. 3790, June 10, 1993. In C.F.S. Air Cargo, Inc., SBA No. 3434, Mar. 18, 1991, the Office of Hearings and Appeals relied on a teaming agreement providing that the prime contractor’s program manager would be the only person to contact the procuring agency to conclude that the prime contractor was not forced to unduly rely on the sub-contractor for contractor performance, this although the subcontractor would staff and manage three of the five sites for contract performance without any presence from the prime contractor.
We’ve put together a model teaming agreement that we believe fully complies with the regulations and decisions that have been discussed. Needless to say, the model teaming agreement is too long to include. Click here to view a model teaming agreement. Just as with the other materials published here, the model teaming agreement is for informational purposes only. Careful readers will understand that use of the model teaming agreement alone will not preclude a finding of undue reliance if, as an example, the competitive proposal does not track the terms of the teaming agreement.
— Cy Phillips
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