Key Ingredients of Successful Teaming Agreements

By Paul E. Knupp, Esq. and Daniel M. Eggleston, Esq.
Lee/Shoemaker PLLC

Teaming agreements are a common framework for design firms pursuing contracts on today’s complex construction projects. Whether pursuing large government infrastructure projects or addressing specialized technical requirements for a small business set-aside contract, a teaming agreement enables design firms to capitalize on the synergies of their disparate skillsets while remaining independent companies. However, teaming agreements also subject design firms to unique risks that require careful evaluation and management.

Teaming Agreements 101
A teaming agreement serves as the foundational document governing the relationship and respective roles of prospective partners during the pursuit phase of a project. Unlike joint ventures, teaming agreements allow participating firms to maintain independence as distinct legal entities while pooling knowledge and resources when pursuing a project award.

These arrangements typically combine discrete technical capabilities, such as contracting expertise paired with engineering specialization, or local market knowledge combined with industry-specific experience. The fundamental premise of the teaming agreement is to present a proposal where the whole is greater than the sum of its parts.

Teaming agreements can also serve important risk management ends by establishing clear expectations and distinctions regarding the parties’ roles, responsibilities, and performance standards, defining how disputes related to bid phase services might be resolved.

Essential Ingredients of Teaming Agreements

• Role Definition and Responsibility Allocation. Effective teaming agreements clearly describe each partner’s responsibilities throughout the pursuit phase. This includes specific delineation of proposal development tasks, client interface responsibilities, technical performance obligations, and project management functions. Teaming agreements may also establish the form of professional services agreement that will be used by the parties if the team is successful in its pursuit of the project.

• Financial Arrangements and Risk Distribution. A teaming agreement should address pursuit cost-sharing and ensure that each firm is appropriately incentivized with equitable “skin in the game.” On a design-build pursuit, for example, the effort required of the designer may be greater than the effort required by the design-builder, such that some level of compensation may be necessary if the design-builder wants the designer to invest in developing the design to enhance the quality of the bid price submitted. On a design-bid-build project, by contrast, the cost of pursuit by two design firms may be equitably divided, with each party bearing the risk of their own costs.

• Intellectual Property Protection. Teaming agreements should clearly delineate ownership of pre-existing intellectual property, establish protocols for jointly developed materials, and define procedures for protecting the proprietary information of each firm.

Risk Management Considerations

• Liability Exposure. Large projects can come with enormous financial exposure. It is important to coordinate among the parties’ respective liability insurers, both professional and commercial, to avoid coverage gaps and/or conflicts and to address these risks before submitting a bid proposal. If additional insurance is required above-and-beyond the standard insurance maintained by the teaming partners, understanding the cost of procuring additional insurance is something all prudent designers should consider before locking in on a price. On a design-build project, it may be prudent to include a limitation of liability clause (amongst other risk transfer provisions) related to bid phase services in your teaming agreement.

• Exclusivity, Confidentiality, and Conflicts. When considering a teaming arrangement, it is important to discuss questions of exclusivity. There are instances where one member of a team is in high demand amongst potential bidders, and they may be inclined to participate on several teams. Defining whether a teaming relationship is exclusive, the scope/extent of confidentiality related to pursuit strategies, and what steps will be taken to avoid conflicts of interest represent important considerations in most teaming agreements, but especially when teaming with a firm who is participating on several teams pursuing a project.

• Contemplate Termination. Teaming agreements should address termination scenarios comprehensively, define triggering events, and outline the procedure for terminating the agreement. Common termination triggers include (a) contract award to a competing team, (b) failure to reach mutually acceptable terms in the follow-on agreement, and (c) breach of the teaming agreement by a party.

• Anticipate the Follow-On Agreement. Different contractual structures create varying risk profiles for team members. Prime/sub relationships involve different legal implications than teaming arrangements. Design professionals should ensure that the teaming agreement aligns with the anticipated contract structure and clearly defines risks and responsibilities between the team members.

Conclusion
The successful teaming agreement typically involves partners with complementary firm cultures and values. While technical capabilities often determine what team wins the project, cultural alignment often contributes to that objective. If you are considering entering into a teaming agreement or currently negotiating a teaming agreement and unsure whether your design firm’s interests are sufficiently protected, the prudent design firm will inform itself of the risks tied to a teaming relationship and will consider conferring with their lawyer about any questions they may have about options/strategies for managing those risks..

Paul E. Knupp, III and Daniel M. Eggleston are lawyers at Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals, in DC, Maryland, and Virginia. The content of this article was prepared to educate related to potential risks, but is not intended to be a substitute for professional legal advice.