It is important to choose the right commercial agreement to progress your business plans. If you’re embarking on a tender bid process by enlisting the help of a third party then a teaming agreement could be your best option. In this article, we outline the pros and cons of a teaming agreement and offer guidance on what to include in your agreement.
To ensure your business relationships and commercial interests are suitably protected, our expert commercial law solicitors can help draft and negotiate a teaming agreement that’s fit for purpose and without the confusing legalese.
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What is a teaming agreement?
A teaming agreement is a commercial contract between two parties who plan to work together on the submission of a tender for work or provision of services. The teaming agreement will say that if the tender is successful then one member of the team will act as the main or prime contractor and the other (or others) will be appointed as the subcontractor (or subcontractors).
The benefits of a teaming agreement
If you want to secure a tender then it is best to undertake an honest appraisal of your business and its capacity to fill all aspects of the tender. On your own, your business may not have the manpower or resources, the specialist employees, or the industry experience to make a successful tender bid or to undertake one or more aspects of the tender specification. As an ambitious start-up, you may not want those issues to hold your company back.
A teaming agreement allows your business to join forces with third parties to share resources for the tender. If you choose the right team partner, your businesses should have complementary skills and resources.
The advantages of a teaming agreement include:
- The parties to a teaming agreement have limited obligation to one another – they are not entering into a joint venture, partnership, or merger.
- There are shared financial risks and rewards
- The ability to enter new markets and bid for tenders that a young start-up or niche business on its own would not be equipped to do
- Able to provide improved tender proposals because of combined capabilities and expertise
- Cutting out a competitor to the tender process if you join up in a teaming agreement
A teaming agreement is vital if you are going in with a third party. Without the right paperwork, you are unlikely to win the tender. With an agreement, you can rely on its provisions to help you resolve any disputes, reducing the risk of ending up in commercial litigation with your tender partner.
Potential drawbacks to a teaming agreement
The possible disadvantages of teaming agreements include:
- Having to share the tender process and rewards with a third party (but your business wouldn’t enter a teaming agreement unless it knew it couldn’t make a successful tender bid on its own)
- Your business is not in complete control of the tender bid process as you are working with a third party
- The main contractor is fully responsible for the completion of the project
- Your business may not agree on the subcontract terms with the other party
The flexibility of a teaming agreement
A teaming agreement allows your business to work with others on a time-limited basis if you don’t want to merge with the other party to the teaming agreement or commit to a joint venture with them.
A teaming agreement will normally specify the parties’ aims and objectives and include a schedule allocating the work between them to best ensure a successful tender. The teaming agreement won't go on to specify how the tender work will be allocated if the tender partners are successful. Those will be set out in:
- The invitation to tender and the main contract between the business offering the tender and the successful bidder (who is identified as the main contractor in the teaming agreement)
- The subcontract between the main contractor and the subcontractor (the parties to the teaming agreement). The subcontract will define the post-tender relationship of the parties to the teaming agreement. The obligations of the subcontractor will stem from the main contract and the subcontract will detail the work to be carried out by the subcontractor
What to include in a teaming agreement
It is usual to include the following terms in a teaming agreement:
- The parties - the agreement should identify who will be the main contractor and subcontractor if the tender bid is successful
- Confidentiality clause – most businesses entering into a teaming agreement want to keep their arrangements confidential. This can be achieved by a confidentiality clause in the teaming agreement to ensure confidential information is identified and protected
- Exclusivity clause – a teaming agreement normally requires the parties to promise or undertake to work exclusively with one another during the preparation and submission of the tender bid. If the tender bid is successful, the parties will enter into a new legal relationship as main contractor and subcontractor. Without an exclusivity clause, both parties are at risk that the other could potentially make another tender bid with a third party
- Intellectual property clause – this is necessary if you are creating intellectual property as part of the tender bid process. An intellectual property clause will normally say the parties own the intellectual property rights in the materials they created before the teaming agreement and that they either own any IP created during the teaming agreement jointly or that one owns the IP rights. The other party to the teaming agreement can be given a license to use the IP if that is considered appropriate
- Key clauses to be included in the subcontract –the teaming agreement should not pre-empt a successful tender bid and set out the full proposed contractual terms between the main party and the proposed subcontractor. However, it is useful for the agreement to record some key aspects of the subcontract agreement. If the tender bid is successful, the last thing your business wants is lengthy negotiations to get the terms of the subcontract agreed. The key subcontract clauses to be included in the teaming agreement include limitation of liability, intellectual property, and the allocation of risk from the main contract to the subcontract agreement
- Liability clause – teaming agreements usually provide for mutuality of obligations but this isn’t always appropriate. Examples of mutuality of obligations include either party being liable to the other party if they participate in competing tenders, breach confidentiality, engage in unpermitted solicitation of the other party’s employees, or infringe third-party intellectual property rights. The liability clause normally says each party shares full responsibility for the accuracy of the tender, but it isn’t always appropriate to include mutuality of liability in a teaming agreement. You should carefully consider liability issues. For example, if one party is the driving force in the tender, they may take on more liability to reflect their central role in the tender bid process
- Termination clause – this clause should set out the circumstances when the teaming agreement will end. For example, if considered appropriate, giving notice of termination
Joint venture or teaming agreement?
A joint venture involves two or more companies creating a business entity for a commercial project. A teaming agreement usually consists of a main contractor and a subcontractor engaging in a joint bid with the subsidiary party not sharing the same degree of reward or risk as the principal party.
If you are planning on entering a bidding process with a third party a teaming agreement is preferable to a joint venture as it is specifically designed to cover the situation where two independent companies or partnerships work together on a bid. For more information on joint ventures read our article on Frequently asked questions on joint venture agreements.
Partnership or teaming agreement?
If you are working with a third party on a tender bid, that’s a long way from the long-term nature of a business partnership with all the legal and accounting issues that flow from a formal business partnership. If the tender is successful the teaming agreement falls away to be replaced with a main contract and subcontract. A teaming agreement is often the best option to ensure that your business has the benefit of a tender bid partner but without the long-term legal commitment or complexities of a partnership agreement.
How to enter a teaming agreement
The teaming agreement process is relatively straightforward and involves:
- Finding a tender that is suitable for your business to bid on – knowing that you have the option of entering a teaming agreement can extend the range of tenders you can bid on
- After having identified the tender and its specification, identify the tender partner, if any, that is right for you to team up with in the tender bid
- Get your commercial solicitor to draw up a draft teaming agreement
- If the tender bid is successful, get a main contract and subcontract drawn up to ensure the tender work runs to plan and manage expectations and reduce the risks of fallouts leading to commercial litigation
