Federal Teaming Arrangements

Understanding the teaming arrangement process is essential for federal government contractors to establish a federal contract win strategy. Taking the time to acknowledge the benefits and risks associated with teaming arrangements will help your company collaborate effectively with another and successfully compete for a federal contract. 

This resource guide explains the idiosyncrasies of teaming arrangements. Upon completion of this guide, the reader should have a better understanding of what team arrangements are, and what are the risks and benefits associated with entering one. This will be done by taking the reader through the Federal Acquisition Regulation (FAR) definitions of the team, Joint Ventures (JVs), small business considerations, and Contractor Teaming Agreements (CTAs). 

The FAR is very long and packed with valuable information–but it says very little about teams. As we’ll see throughout this resource guide, when it comes to small businesses and their teammates, many of the key requirements are found only in the Small Business Administration (SBA) regulations. The FAR does, however, recognize two broad categories of teams. Almost all teams established for federal government contracting will fall into one of these two categories: 

• Category 1: FAR 9.601(1) allows teams to take the form of a “partnership or joint venture,” under which the partners or venturers will, together, “act as a potential prime contractor.” This sort of teaming arrangement is sometimes referred to as “horizontal” teaming because the partners are both at the same contracting “level,” that is, they are both (through the partnership or joint venture) acting as prime contractors. 

The SBA’s regulations do not distinguish between partnerships and joint ventures, essentially suggesting that a partnership is one permissible form of a joint venture. Therefore, throughout this resource guide, we will simply refer to horizontal teaming as “joint venturing.”

• Category 2: FAR 9.601(2) allows for prime/subcontractor teaming, which the FAR says is where “a potential prime contractor agrees with one or more other companies to have them act as its subcontractors.”  Prime/subcontractor teaming is sometimes called a “vertical” teaming relationship because the parties are not on the same contracting “level.”  Instead, one company (the subcontractor) is subordinate to the other (the prime).  

The easiest way to differentiate between a prime/subcontractor team and a joint venture is to ask: who is the prime contractor?

In a prime/subcontractor team, only one company is the prime contractor. However with a joint venture, the joint venture entity itself is the prime contractor, and the joint venture’s members are collectively responsible for the joint venture’s performance. In other words, a joint venture is a vehicle under which two or more companies can share the benefits and obligations of serving as the prime contractor on a government contract.   

With this important conceptual distinction in mind, many of the key differences between prime/subcontractor teams and joint ventures are rather logical. Some of the most important differences between joint ventures and prime/subcontractor teams are:

• Relationship with Government.  In a joint venture, because all parties are part of the prime contract entity, all parties have a direct relationship with the government customer.  In contrast, in a prime/subcontractor team, only the prime contractor has a direct relationship with the Government. Because of this, many Contracting Officers and other federal agency officials will decline to deal directly with a subcontractor.  
• Prime Contract Responsibilities. Because all members of a joint venture are part of the prime contractor, each venturer is responsible for the full performance of the prime contract. If one joint venturer is unable to complete its share of the prime contract work, the other venturers are nonetheless responsible for ensuring that the work is completed. In contrast, in a prime/subcontractor team, only the prime is responsible for ensuring that the prime contract work is completed. 
• Separate Legal Entity.  A joint venture typically is a separate legal entity. In some cases, a joint venture may be an informal partnership, but often joint ventures are formed as Limited Liability Companies (LLCs).  For joint ventures operating under the SBA’s rules, the joint venture entity must be registered in the System for Award Management (SAM). The parties to a prime/subcontractor team do not create a new legal entity, and no new SAM registration is required.  
• Small Business Eligibility. Except for joint ventures operating under an SBA-approved mentor-protege agreement, a joint venture only qualifies as a small business if all venturers fall beneath the applicable size standard. In contrast, in a prime/subcontractor team, only the prime must fall beneath the applicable size standard. The prime is limited, however, in how much of the prime contract can be subcontracted to large businesses.

For more information, download Part I: Joint Ventures and Part II Prime/Sub below.

Resource guide authored by The Pulse of GovCon (Roxanne Reinhardt) and Koprince Law LLC (Steven Koprince & Nicole Pottroff)

This article is for educational use only and is not individualized legal advice.  This article covers the rules in effect when the article was published—but please check for updates in the future.