Small vs. Big Contractors. In the “general contractor” model, the enterprise customer is looking for one contractor to be responsible for control and management of a service or function. Or the enterprise might simply want to hire a large contractor capable of delivering “end-to-end” business processes. In each case, the smaller contractors face the challenge of losing business opportunities by failing to be selected by the enterprise customer or the general contractor to perform work in the smaller contractors’ niche.
The Role of a “Teaming Agreement.” What can the niche service providers do to ensure they can compete effectively and service large clients? Typically, they adopt teaming agreements. A teaming agreement is an agreement between two independent contractors that seek to share business to be hired by the same customer. Typically, it is negotiated and signed before the contractors enter a joint bid for the customer’s work.
The Structure of a Teaming Agreement. The timing of the teaming agreement dictates its structure and function. It serves to bind the jointly bidding contractors together into a project-based consortium to offer combined services to a targeted customer or market segment of customers. At the time of the bid, it might not be known which of the joint bidding contractors will be selected by the customer to serve as general contractor. Or, the joint bidding contractors might agree to designate one of them as the prime contractor for the bid, with the others agreeing to be the subcontractors. Accordingly, a teaming agreement structures the relationship of the joint bidding contractors before the master services agreement is awarded to the prime contractor.
Contractual Teaming Agreements. The contractual teaming agreement is a short-term agreement, with the goal of being replaced by a master services agreement with the customer and subcontracts that meet the needs and approval of the customer. The structure is typically an ad-hoc contract that specifies:
- the roles and responsibilities, as well as the relevant pricing framework, of each joint bidder in developing and pursuing the joint bid;
- the management role of one or the other joint bidder in negotiations with the customer;
- confidentiality of their respective trade secrets and intellectual property as well as the terms of the agreement; and
- a plan for disengagement when the particular bid (or bidding program) is deemed to have failed.
Joint Venture Teaming Agreements. Sometimes a joint venture, in the form of a legal entity owned jointly by the bidders, becomes appropriate. In the commercial context, the intrinsic governance structures and legal limitations on liability may justify the cost and complexity of a new legal entity to bid for a consortium. Where governments are the customers, the legal entity may be used for multiple bids for the same product or services where, for example, a smaller company has specialized expertise or technology, and the larger company has excess capacity for manufacturing, deeper pockets (and more credibility) or other specialized experience in government contracting.
Challenges for Bidding Teams. Joint bidding by contractors involves ongoing competitive tensions about money, control and prestige. Teaming arrangements can fall apart if the parties dispute whether a particular customer falls within a target for the joint bidding program. Or the team members could disagree on other matters that involve disclosing information to a competitor that could impair future competitive advantage. These anti-competitive aspects invite regulatory scrutiny as well to ensure that markets are not adversely affected by monopolistic actions or abuses of a dominant market position. As a result, the most viable teaming arrangements are between contractors that have different skill sets and different target markets.
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