What is a Teaming Agreement and is it Enforceable?

Government contracts can be lucrative for many companies, large or small. Often, one company wants to bid on a government contract but needs assistance from another company to fully perform the contracted work. In such cases, the two companies would combine their resources to share the bid and the contract, if awarded.  When this situation arises, it is critical to ensure that the companies have an agreement, a “teaming agreement”, stating how the work set forth in the government contract is to be divided to protect the interests of each business.

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Many teaming agreements involve a large corporation acting as the primary contractor and one or more smaller businesses acting as subcontractors. Smaller businesses naturally want to protect their interests against larger corporate entities with more resources. Preparing bids can be costly and time consuming and can take focus away from other day to day operations of the business.

Unfortunately, the problem is that many teaming agreements have been deemed unenforceable by California state courts. Because a teaming agreement is signed before a contract is awarded and whether it takes effect is dependent upon winning the contract, many courts have stated that teaming agreements are “an agreement to agree” in the future instead of a binding contract. This means that a subcontractor could take the time to prepare a bid and enter into an agreement with a primary contractor, and once the government contract is won by the primary contractor, it could decide to use a different subcontractor, leaving little legal recourse for the subcontractor.

 While there is no guarantee a court will uphold a teaming agreement, certain provisions in your agreement may enhance the chances of enforceability. A seasoned California corporate litigation attorney can help you draft, edit or review your teaming agreement so that it is more enforceable in court.  Some of the provisional clauses to include are as follows:

  • Clearly stating the purpose of the agreement and setting a duration for the agreement;
  • Describing in detail the scope of work to be done by subcontractors and the pricing for that work;
  • Stating the primary contractor “shall” team up with the subcontractor if awarded the government contract;
  • Including a provision that allows the primary contractor to terminate the teaming agreement only if the contract is not won.

 It is essential to have a teaming agreement drafted, reviewed, and negotiated by an experienced corporate attorney prior to signing. In addition, you should have an experienced business litigation lawyer on your side if a party violates your teaming agreement, as these cases can be quite complex.

 An Experienced California Business Lawyer Can Assist You

 If you or your company is considering bidding for a government contract and want to have a teaming agreement in place should you win the bid, contact our office today to learn how we can help you.  Structure Law group, LLP represents California companies of all sizes, should you need any assistance with a business contract or are in litigation, do not hesitate to call us at 408-441-7500 or fill out our online contact form.

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