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When to use a teaming agreement

There are a vast range of commercial contracts and it’s important to choose the right type of agreement for your business plans. If you’re embarking on a tender bid process and think enlisting the help of a third party, a teaming agreement could be the best, and safest option. Weight up your options with our article outlining the pros and cons of a teaming agreement, and how to ensure that, when you use a teaming agreement, it’s correctly drafted to protect your interests before you make your bid.

What is a teaming agreement?

A teaming agreement is a type of commercial contract between two parties who plan to work together on the preparation and submission of a tender for work or provision of services. The teaming agreement will record that if the team make a successful tender 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.

A teaming agreement can give your business a better chance of securing a tender so a teaming agreement is a worthwhile option to consider if you want to tender for work but don’t think that, on your own, you will secure the tender.

What are the benefits of a teaming agreement?

If you want to secure a tender then it is best to undertake an honest and realistic appraisal of your businesses capacity to fill all aspects of the tendered work. On its own your business may not have the man power or resources behind it to successfully win a tender. Alternatively, your business may not have the specialist employees or industry experience to write a successful tender bid or to undertake one or more aspects of the tender specification.

A teaming agreement allows your business to join forces with other parties to share resources for the purposes of the tender and, if you choose the right team partner, your businesses should complement each other’s capabilities in bids and proposals.

Teaming agreements can be the best means to success for companies. 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 teaming agreement provides the ability to enter new markets and bid for tenders that you otherwise would not have been able to do so.
  • You are able to provide far better tender proposals due to your combined capabilities with your team members in contrast to if you had proceeded with the tender without third party support or even competed against them for the tender.

Are there any disadvantages with a teaming agreement?

It’s best to weigh up the pros and cons of a teaming agreement before committing yourself, as it is important to assess if a teaming agreement will be in your business’ best interests. The disadvantages of teaming agreements include:

  • Having to share the tender process and rewards with a team member or third party. Realistically though your business wouldn’t enter a teaming agreement unless it didn’t have the capacity on its own to successfully bid for a tender or the capacity to do the work.
  • The main contractor is fully responsible for the completion of the project.
  • There is the possibility that your business may not agree on the subcontract terms with your subcontractor.
  • You have to share the rewards of the tender as you need to pay the subcontractor – however, if you had not entered a teaming agreement, and entered into a subcontract, you may not have secured the tender or you may have had to spend money on recruiting additional staff or equipment.
  • Your business is not in complete control of the tender bid process as you are having to work with a third party.

How flexible is a teaming agreement?

A teaming agreement allows your business to work with others on a time limited basis as you don’t want to merge with the other party to the teaming agreement or to 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 on the subcontractor will stem from the main contract and the subcontract will detail the work to be carried out by the subcontractor.

What should be included in a teaming agreement?

 It is important that a teaming agreement spells out the agreement between the planned main contractor and proposed subcontractor. It is usual to include the following terms in a teaming agreement:

  • The parties to the agreement and the agreement should identify who would 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 and this can be achieved by a confidentiality clause in the teaming agreement. It is important that confidentiality is properly addressed so as to not expose any confidential business information without the right safeguards in place.
  • Exclusivity clause – a teaming agreement will normally require the parties to the agreement 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 then the teaming agreement parties will have to enter into a new legal relationship as main contractor and subcontractor. If there is no exclusivity clause in the teaming agreement, then both parties to the agreement are at risk that the other could potentially bring another third party to work on the tender or to work on a different tender.
  • Intellectual property clause – this clause may be necessary if your business and the other party to the teaming agreement will create any intellectual property as part of the tender bid process. Any intellectual property clause of the agreement will normally say that the parties agree they own the intellectual property rights in materials they created prior to the teaming agreement and that they either own any intellectual property created during the teaming agreement jointly or that one owns the IP rights. The other party to the teaming agreement can be given a licence to use the intellectual property if that is felt appropriate
  • Key clauses to be included in the subcontract – whilst the teaming agreement should not pre-empt a successful tender bid or be used to record the precise terms of the subcontract between the main party and the proposed subcontractor it is however useful for the teaming agreement to set out some of the key clauses that will be included in the subcontract agreement, assuming that there is a successful tender bid. If the tender bid is successful the last thing that you will want is for lengthy negotiations to start after the event to try and get the terms of the subcontract agreed. Generally commercial solicitors say that the key subcontract clauses to be referred to in the teaming agreement are on issues such as limitation of liability, intellectual property and the allocation of risk from the main contract to the subcontract agreement.
  • Liability clause – a liability clause in a teaming agreement is important. Normally teaming agreements provide for mutuality of obligations. However, this isn’t always appropriate. Examples of mutuality of obligations include either party could be liable to the other for participating in competing tenders or breaches of confidentiality or the unpermitted solicitation of the other party’s employees, or losses incurred by the other party for infringement of a third party’s intellectual property rights. It is important to note that each party has full responsibility for the accuracy of the content of its section of the tender. That means neither party to the teaming agreement will be liable to the other party should the tender bid be unsuccessful. However, it isn’t always appropriate to include mutuality of liability in a teaming agreement. It pays to carefully consider liability issues so that the teaming agreement meets your particular circumstances, and so that if your business situation warrants it because one party is the driving force in the tender bid, they take on more liability to reflect their driving role in the tender bid process.
  • Termination clause - it is important that a teaming agreement contains a termination clause setting out the circumstances when the teaming agreement will end. For example, if considered appropriate, by giving notice of termination.

Should a joint venture agreement be used rather than a teaming agreement?

We are often asked whether a joint venture agreement is more appropriate than a teaming agreement. However, if you are planning on entering a bidding process with a third party then a teaming agreement is preferable as it is specifically designed to cover the situation where two independent companies or partnerships work together on a tender bid. For more information on joint ventures read our article on Frequently asked questions on joint venture agreements

Why not enter into a partnership agreement rather than a teaming agreement?

If you and a third party are working together 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. Once the tender process is at an end then the teaming agreement falls away to be replaced with a main contract and subcontract should the bid prove successful. A teaming agreement is therefore the best option to ensure that your business has the benefit of a tender bid partner but without the legal commitment or complexities of a partnership agreement.

How does a business enter into 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 for approval and once finalised ensure it is executed.
  • If the tender bid is successful, get a main contract and subcontract drawn up to maximise the prospects of the tender work running smoothly, to manage expectations and to reduce the risks of fallouts leading to commercial litigation.

What next?

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