Dra$ing  Enforceable  and  Helpful  

Teaming  Arrangements  

Presented  By:    

Jackson  W.  Moore    

Smith,  Anderson,  Blount,  Dorse=,    Mitchell  &  Jernigan,  LLP  www.smithlaw.com  

 

jmoore@smithlaw.com  (919)  821-­‐6688  

Outline  

I.  Teaming  Agreement  Basics:    JV’s,  TA’s  and  SubK’s  

II.  Cyberlock  and  Teaming  Agreement  Enforceability  

III. Key  ConsideraUons  in  DraVing  a  JV  IV. Key  ConsideraUons  in  DraVing  a  SubK  V.  QuesUons  

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I.  Teaming  Arrangement  Basics  

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Teaming  Arrangements  

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Joint Venture (JV) FAR 9.601(1)

Teaming Agreement

Prime / Subcontract (SubK)

FAR 9.601(2)

Teaming  Agreements:  Joint  Ventures  &  Contracts/Subcontracts  

  •  Joint  Venture  vs.  contractor/subcontractor    

–  JV:    “Two  or  more  companies  form  a  partnership  or  joint  venture  to  act  as  a  potenUal  prime  contractor”  FAR  9.601(1).    This  includes  mentor-­‐protégé  joint  venture  agreements.  

 –  Contractor/Subcontractor:    “A  potenUal  prime  contractor  agrees  with  one  or  more  other  companies  to  have  them  act  as  its  subcontractors  under  a  specified  Government  contract  or  acquisiUon  program”  FAR  9.601(2).  

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Teaming  Agreements:    Why  the  Government  Cares  

•  Groupings  to  compete  for  a  government  contract.    FAR  9.602.  –  “[c]omplement  unique  capabiliUes”  –  “[o]ffer  the  Government  the  best  combinaUon  of  performance,  cost,  

and  delivery  for  the  system  or  product  being  acquired”  •  Government  allows  teaming  agreements,  so  long  as  they  follow  

government  regulaUons.    FAR  9.603.  •  Versus  tradiUonal  B2B  world,  where  joint  ventures  and  prime/subcontract  

relaUonships  are:  –  Less  regulated    –  Without  size  standards  –  Without  governmental  oversight.  

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Joint  Ventures  

•  “[C]ompanies  form  a  partnership  or  joint  venture  to  act  as  a  potenUal  prime  contractor”    

•  Key  Word:    Partnership    •  Members  share  profits  and  losses  •  Each  Member  has  authority  to:    

– make  decisions  that  bind  the  joint  venture    –  interact  with  government  

•  Joint  Venture  has  the  contract  with  the  government  –  not  each  member  

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Pros  &  Cons  of  a  Joint  Venture  •  Pros    

–  JV  member  has  increased  stature  (vs.  SubK)    – Shared  control  –  Individual  firms  can  stay  smaller  longer  

•  Cons    –  Joint  responsibility  for  performance  (vs.  SubK)    – Shared  control    – Lead/Larger  team  member  gives  up  some  control  to  other  team  member  

– TerminaUon/unwinding  JV  more  complicated  

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Contractor/Subcontractor  

•  Prime  contractor  enters  into  contract  with  government  –  Prime  subcontracts  with  other  team  member  – No  “privity”  between  the  government  and  subcontractor  

•  Only  Prime  interfaces  with  government  –  Prime  controls  contract  – DuUes  are  defined  in  SubK  

•  No  sharing  of  profits  and  losses  •  Subcontractor  paid  according  to  SubK  only  

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Requirements  for  Joint  Ventures  

•  Requirements  Vary  by  Type  of  Team  – SBC/SBC  JV  for  SBC  set  aside.  13  CFR  §  121.103(h)(3)  

– 8(a)/non-­‐8(a)  JV  for  8(a)  set-­‐aside.  13  CFR  §  124.513  

– SDVOSB/SBC  JV  -­‐  13  CFR  §  125.15(b)  – WOSB/SBC  JV  -­‐  13  CFR  §  127.506  – HUBZone/HUBZone  JV  -­‐  13  CFR  §  126.616  

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More  Joint  Venture  Requirements  

•  Generally:  –  “Managing  venturer”  must  be  the  small  business.  –  “Project  manager”  must  be  the  small  business.  –  Small  business  must  perform  percentage  of  the  work  (not  including  administraUve  funcUons).  

–  A  certain  %  of  profits  may  need  to  go  to  small  business.  –  JV  agreement  may  need  to  include  certain  terms.  –  JV  may  need  to  show  benefit  to  small  business.  –  There  may  be  registraUon  and  reporUng  requirements.  

•  In  some  cases,  SBA  pre-­‐approval  required  for  JV  agreement  

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III.  The  Cyberlock  Decision  

(April  3,  2013)  

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Cyberlock  •  A  Detailed  Teaming  Agreement,  and  Not  a  Generic  One,  Is  Needed  Before  the  ParUes  Can  Chase  a  Government  Contract.  

•  Lawsuit:    Team  members  agreed,  in  wriUng,  that  if  the  prime  bidder  was  awarded  a  contract,  51%  percent  would  be  performed  by  the  prime  and  49%  by  the  teammate  as  a  subcontractor.    Team  members  did  not:  –  Agree  how  the  scope  of  work  would  be  divided.  –  A=ach  terms  of  subcontract  that  would  be  executed.  

•  Agreement  noted  that  it  was  possible  parUes  would  not  be  able  to  agree  on  the  terms  of  a  subcontract.  

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Cyberlock  •  Teammates  prepared  proposal  together.    Prime  won  the  contract  but  teammates  could  not  agree  on  terms  of  the  subcontract.  

 •  Decision:      

– No  contract,  an  “agreement  to  agree”  only.  –  Teaming  agreement  too  indefinite  to  enforce.    

•   Virginia  law  applied,  might  be  appealed  to  Fourth  Circuit.  

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IV.  Dra$ing  a  JV  Agreement  (Key  ConsideraVons)  

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IdenVfy  the  Purpose  and  Scope  of  the  JV  

•  IdenUfy  the  specific  contracts  or  projects  the  JV  is  pursuing  

•  What  do  you  intend  to  do  and  not  do  •  Is  this  a  “Preference”  JV  with  specific  requirements  •  Number  of  parUes  •  Individuals  vs.  enUUes  •  What  tax  and  other  regulatory  issues  will  be  impacted  •  Is  this  an  InternaUonal  JV  –  what  local  laws  are  implicated  

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IdenVfy  the  Form  of  the  JV  

•  Populated  vs.  Unpopulated  •  Jointly  owned  corporaUon  or  group  of  corporaUons  •  Partnership  •  LLC  •  Contractual  (non-­‐equity)  JV  –  Informal  and  less  structure  

Ø Note:    Issues  affecUng  determinaUon  will  include  tax,  liability,  regulatory,  acquisiUon  strategy,  IP  ownership,  exit  strategies,  etc.  

Ø Interim  Le=er  of  Intent  (binding  or  non  binding)  

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Governance  of  the  JV  

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•  How  will  be  the  JV  be  managed  (manager  managed,  joint  venturer  managed,  officers,  board  of  directors,  commi=ee)  

•  Authority  of  the  manager  –  business  decisions,  personnel  decisions,  investment,  distribuUons,  etc.  

•  Authority  of  the  co-­‐venturers  (Members)  –  replace  managers,  individual  vs  consensus  powers,  Ue  breaker,    

•  MeeUngs  –  frequency,  quorum,  iniUaUon,  locaUon,  etc.  •  IdenUfy  acUons  requiring  majority  or  unanimity  approval  

of  the  members  or  a  board  

Financial  Decisions  of  the  JV  

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•  How  will  the  JV  be  financed  –  venturer  financed,  3d  party,  credit  line,  venture  capital,  etc.  

•  AccounUng  pracUces  and  accounts  •  DistribuUons  of  profits  and  investment  of  profits  •  Responsibility  for  debt  •  Who  signs  the  checks  •  Audit  procedures  •  Financial  reports  –  format,  responsibility,  

frequency,  etc.  

Business  Decisions  of  the  JV  

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•  Bid  and  Proposal  responsibiliUes  •  Who  brings  what  to  the  table  •  Who  makes  the  criUcal  decisions  •  Who  prepares  and  who  approves  the  budget  •  Who  prepares  and  who  approves  business  plans  •  Insurance  for  the  JV  (separate  policy)    

Share  and  Interest  Transfer    RestricVons  of  the  JV  

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•  Normally  no  transfers  permi=ed  except  as  provided  in  agreement  

•  Transfers  to  affiliates  –  subject  to  agreement,  joint  and  several    

•  Call  rights  •  First  Offer/First  Refusal  •  Tag-­‐along/drag-­‐along  rights  •  Buy-­‐sell  rights  

ConfidenVality  

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•  Separate  nondisclosure  agreements  –  Benefits  •  Protect  Proprietary  InformaUon  •  Term  •  Survivability  •  IP  and  Technology  protecUon  

IndemnificaVon  &  Insurance  

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•  Mutually  focused  provisions  and  protecUons  •  What  should  be  covered  under  insurance  

NonsolicitaVon  and  Noncompete    

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•  Most  complicated  and  sensiUve  to  negoUate  •  Address  exposure  of  your  greatest  assets  –  

employees  •  Exposure  to  compeUUon  •  Are  restricUons  reasonable  •  DissoluUon  

Exit  and/or  TerminaVon  Rights  

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•  Triggering  Events:  ü  Default  –  Material  breaches,  change  of  control,  

suspension,  debarment,  etc.  ü  No-­‐default  –  Deadlocks,  3d  party  offers,  

frustraUon  of  business  intent  •  ProtecUon  for  Minority  Member(s)  •  Treatment  of  JV  debt  •  Ongoing  performance  of  contracts  •  ValuaUon  of  Exit  Share  

Closing  Process  of  the  JV  

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•  Clearly  define  rights  and  obligaUons  •  ResignaUon  of  seller’s  representaUves  •  Guarantees  and  Covenants  of  seller/co-­‐venturer  •  Guarantees  and  Covenants  of  3d  party/buyer  •  Survival  of  key  terms  in  agreement  

   V.  

Dra$ing  a  Teaming  and  SubK  Agreement  

(Key  ConsideraVons)  

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Teaming  Agreements  

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•  Set  condiUons  for  SubK  •  Exclusivity  •  Define  contribuUons,  responsibiliUes  and  

obligaUons  •  Bid  &  Proposal  costs  •  AffiliaUon  •  Good  faith  and  Ume  limits  for  creaUng  a  SubK  •  NDA  and  confidenUality  provisions  •  Non-­‐compete  &  non-­‐solicitaUon  clauses  

Subcontract  Agreements  I  

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•  Ensure  it  tracks  prime  contract  (compliance  term,  period  of  performance,  OCI  plans,  etc.)  

•  Flow  down  provisions  (term  for  convenience,  term  for  cause,  etc.)  

•  Approval  of  2nd  Uer  Subcontractors  •  RelaUonships  with  the  client  •  IP  &  Technology  protecUons  (old  vs.  created)  

Subcontract  Agreements  II  

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•  Breaches  •  NoUces  to  parUes  •  TerminaUon  (voluntary  and  involuntary)    •  Venue  –  will  it  be  exclusive  •  Choice  of  Law  –  what  law  se=les  disputes  

ConfidenVality  

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•  Separate  nondisclosure  agreements  –  Benefits  •  Protect  Proprietary  InformaUon  •  Term  •  Survivability  •  IP  and  Technology  protecUon  

IndemnificaVon  &  Insurance  

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•  Mutually  focused  provisions  and  protecUons  •  What  should  be  covered  under  insurance  

NonsolicitaVon  and  Noncompete    

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•  Most  complicated  and  sensiUve  to  negoUate  •  Address  exposure  of  your  greatest  assets  –  

employees  •  Exposure  to  compeUUon  •  Are  restricUons  reasonable  

Dispute  ResoluVon  

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•  MediaUon  •  ArbitraUon    

Ø  An  express  arbitraUon  clause  Ø Mandatory?  

•  LiUgaUon      •  Venue  •  Exclusive  jurisdicUon  •  Costs  

   

 

Trust,  Trust,  Trust!  

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QuesVons?  

 Smith,  Anderson,  Blount,  Dorse=,    

Mitchell  &  Jernigan,  LLP  www.smithlaw.com  

 

Jackson  W.  Moore    

jmoore@smithlaw.com    (919)  821-­‐6688