Teaming Arrangements For Federal Contracts. May 6, 2015

Transcription

1 Teaming Arrangements For Federal Contracts May 6, 2015

2 INTRODUCTION Shannon Edie President & Senior Consultant Daphne Tong-Pave Vice President & Senior Consultant Holomua Consulting Group, LLC (Holomua) is a small, woman-owned business located in Honolulu, Hawaii. Our full-service, solution-oriented consulting firm focuses on assisting businesses with maximizing small business opportunities, navigating the complex legal and compliance landscape of federal government contracting, and developing its tools and knowledge to excel at government contracting.

3 AGENDA TEAMING Overview of teaming for federal contracts Advantages and disadvantages of teaming General considerations in teaming PRIME/SUBCONTRACTOR TEAMS Teaming agreements and subcontracts Applicable limits on subcontracting Ostensible subcontractor affiliation JOINT VENTURES JV formation and agreements Applicable limits on subcontracting Affiliation considerations MENTOR-PROTÉGÉ PROGRAM Overview of the program Program benefits SBA PERSPECTIVE Best practices for small business teaming Considerations regarding Mentor-Protégé program

4 TEAMING HOW IS TEAMING DEFINED? Federal Acquisition Regulation (FAR) Supplemental Acquisition Regulations (i.e. DFARS) Agency guidance (i.e. General Services Administration Contractor Team Arrangement (CTA))

5 FAR Definition: TEAMING WHAT IS A TEAM ARRANGEMENT? Contractor Team Arrangement [m]eans an arrangement in which: 1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or 2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.

6 TEAMING SUMMARY OF VARIOUS TEAMING ARRANGMENTS: PRIME- SUBCONTRACTOR AGREEMENT Potential prime contractor agrees with one or more companies to have them act as a subcontractor under a specified contract. JOINT VENTURE AGREEMENT Two or more companies form a joint venture to act as a potential prime contractor for a specific contract. MENTOR-PROTÉGÉ AGREEMENT Successful firm provides various forms of business development assistance to an 8(a) BD Program Participant, including joint venture agreements

7 TEAMING DIFFERENCES BETWEEN A TEAM AND JV: PRIME/SUB TEAM JOINT VENTURE No new legal entity is created JV is a separate legal entity Only one party performs at the Prime Contractor level Prime should be the party in control of the team Prime bears most of the risk (re: contract performance) Prime is only party that has privity of contract with Government No stated limit on number of opportunities team can pursue Both parties perform at the Prime Contractor level The partners share control of the team Risk is allocated according to the JV agreement JV has privity of contract with Government JV can only have 3 contracts over a 2 year period

8 TEAMING WHY TEAM? Merge capabilities, past performance, and other skills and assets to compete for larger, more technically complex contracts Offer the Government more in terms of resources, performance, key personnel, other capabilities, and cost Facilitate market entry and also reduce financial and/or technical risk Take advantage of small business contracting preferences/advantages (specifically for large businesses) Assists large businesses with meeting small business subcontracting goals

9 TEAMING WHAT ARE DISADVANTAGES TO TEAMING? Prime contractor is the only party in privity of contract with the Government, and therefore bears the entire risk of contract performance and limits the subcontractors ability to seek recourse from the Government Difficulties reaching an agreement with the prime contractor on the terms of the subcontract after the contract is received Management issues or partner disagreements may be difficult to mitigate and may result in delayed decision making (particularly for JVs that create a separate legal entity) Concerns/problems arising from affiliation

10 TEAMING GENERAL TEAMING CONSIDERATIONS: CONTEXT LEVERAGE EXPECTATIONS What is the opportunity being pursued? What is the relationship between the team members? What benefits do you expect to get out of the arrangement? Are there any special requirements that apply to the opportunity? What special leverage do you have in negotiating? What is your expectation regarding roles and responsibilities?

11 TEAMING GENERAL TEAMING CONSIDERATIONS (CONT): DUE DILIGENCE PERFORMANCE OF WORK SIZE AND AFFILIATION ISSUES What are the capabilities the prospective team member brings to the table? What performance of work limits apply to the contract? What mechanism is in place to ensure size status of team member? Is the prospective team member who they say they are? Does the proposed division of work meet the applicable limits? Is the arrangement set up so as to minimize affiliation concerns/issues?

12 PRIME/SUBCONTRACTOR TEAMS Prime/Subcontractor Team: A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program. PRIME SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR

13 PRIME/SUBCONTRACTOR TEAMS WHY BUSINESSES (LARGE AND SMALL) TEAM VIA SUBCONTRACTING: Gain access to Federal Market Gain experience and past performance Gain access to contracts set-aside for specific business categories/classifications (i.e., 8(a), WOSB, SDVOSB, HUBZone) Provide a necessary area of expertise for proposal submission or contract performance Satisfy small business subcontracting goals Prevent a team member from working with a competitor

14 PRIME/SUBCONTRACTOR TEAMS SUBCONTRACTING PROCESS: Identification of potential contract opportunity (RFP or other) Identification of potential team member(s) Non-Disclosure Agreement Teaming Agreement Contract Performance Subcontract Negotiation and Award Contract Award Proposal Preparation and Submission

15 PRIME/SUBCONTRACTOR TEAMS IMPORTANT CONSIDERATIONS IN TEAMING: OBJECTIVES TRUST RISK EXCLUSIVITY What are your strategic objectives? What are your strengths and weaknesses? How well do you know your teammate? Will your teammate be able to perform? Which party is bearing the risk? If it is you, have you done a cost/benefit analysis? What are the benefits of an exclusive relationship? Can you join another team after contract award?

16 PRIME/SUBCONTRACTOR TEAMS OTHER CONSIDERATIONS: CONTEXT What is the opportunity being pursued? Do any special requirements apply to the opportunity? LEVERAGE What is the relationship between team members? What special leverage do you have in negotiating? What benefits do you hope to get out of the relationship/arrangement? EXPECTATIONS What is your expectation regarding roles and responsibilities?

17 PRIME/SUBCONTRACTOR TEAMS OTHER CONSIDERATIONS (CONT): DUE DILIGENCE What are the capabilities each potential team member brings to the table? Is the prospective team member who they say they are? PERFORMANCE OF WORK What performance of work limits apply to the contract? Does the proposed division of work meet applicable limits on subcontracting? What mechanism(s) is in place to ensure size status of relevant team members? SIZE AND AFFILIATION ISSUES Is the arrangement set up so as to minimize affiliation concerns?

18 PRIME/SUBCONTRACTOR TEAMS CHALLENGES AND LIMITATIONS: SIZE STATUS AND AFFILIATION Affiliation looks at the control (or potential to control) by a large business over the small business Prime Contractor Affiliation can destroy small size status and/or program eligibility Teaming partners should enter into arms-length transactions and be aware of the impact their relationships can have on size status LIMITS ON SUBCONTRACTING Small business prime contractors must self-perform a certain percentage of the contract work (per SBA regulations) Each program has its own specific percentage requirements Teaming partners should ensure that these percentages are properly calculated and specified in the Teaming Agreement and/or Subcontract

19 PRIME/SUBCONTRACTOR TEAMS LIMITS ON SUBCONTRACTING: Services: 50% Supplies: 50% General Construction: 15% Specialty Construction: 25%

20 PRIME/SUBCONTRACTOR TEAMS LIMITS ON SUBCONTRACTING: CURRENT RULE For set-aside contracts, the limit on subcontracting is currently calculated based on the cost of contract performance incurred for personnel (i.e., labor costs) PROPOSED RULE Pursuant to the 2013 National Defense Authorization Act, the limit on subcontracting will be changed so that it will be calculated based on the total contract value

21 PRIME/SUBCONTRACTOR TEAMS TEAMING AGREEMENT DEFINED: A contractual agreement involving two or more independent companies that join together for the specific business purpose of pursuing/obtaining and performing a specific procurement or contract, and which defines the parties rights, roles and responsibilities in that endeavor.

22 PRIME/SUBCONTRACTOR TEAMS TA PROVISIONS AND KEY CONSIDERATIONS: Exclusivity Clear purpose/objective and scope Proposal preparation and control Description of the contract work to be performed The parties work share/split Entering into a Subcontract Termination of Teaming Agreement Choice of Law Customer Interface Proprietary Information/Confidentiality Dispute Resolution Limitation of Liability

23 PRIME/SUBCONTRACTOR TEAMS TA PROVISIONS AND KEY CONSIDERATIONS: THE PARTIES RELATIONSHIP AND EXCLUSIVITY Should specify that the parties are not in a joint venture Should address whether the relationship is exclusive PURPOSE AND SCOPE OF THE TEAMING AGREEMENT Should identify the specific opportunity covered by the TA Should specify the actual work each team member is anticipated to perform under the contract (not just the percentage) PROPOSAL PREPARATION Should identify which party is responsible for what parts and set tentative deadlines Should specify that the prime has ultimate control over the proposal

24 PRIME/SUBCONTRACTOR TEAMS TA PROVISIONS AND KEY CONSIDERATIONS: AWARD OF SUBCONTRACT Should address level of effort Prime to exert in obtaining Government consent to subcontract Consider requiring subcontract negotiation disputes through ADR process SUBCONTRACT TERMS May want to incorporate teaming agreement terms Include special considerations applicable to subcontract (or attach draft subcontract) TERMINATION OF TEAMING AGREEMENT Should be clear as to when the TA terminates/expires Should be clear as to which clauses, if any, survive termination/expiration

25 PRIME/SUBCONTRACTOR TEAMS TA PROVISIONS AND KEY CONSIDERATIONS: CONFIDENTIALITY AND INTELLECTUAL PROPERTY RIGHTS TA will generally incorporate by reference any prior NDA/Confidentiality Agreements The TA should address who owns any IP generated/developed NON-SOLICITATION OF EMPLOYEES Prohibit solicitation of employees for specified period of time Subject to any agreements between the parties regarding specific employees (for purpose of the contract work) CHOICE OF LAW Pick a state that has experience interpreting TA and/or in federal procurement law Include clause that applies federal law (where applicable)

26 PRIME/SUBCONTRACTOR TEAMS TA PROVISIONS AND KEY CONSIDERATIONS: ALTERNATIVE DISPUTE RESOLUTION Provide reasonable degree of certainty regarding how disputes will be resolved Consider including escalation clause for resolving disputes re subcontract negotiations LIMITATION OF LIABILITY AND INDEMNIFICATION Limit recovery of damages to those directly tied to the breach of contract at issue Allow parties degree of certainty re recourse and provide for remedies that may not normally be available (attorney fees) EQUITABLE REMEDIES Consider a clause which provides for injunctive relief to immediately stop the breaching party s conduct or compel the non-performing to perform

27 PRIME/SUBCONTRACTOR TEAMS SUBCONTRACT DEFINED: In the event the Prime Contract is awarded the contract by the federal government, the Subcontract supersedes and replaces the Teaming Agreement and becomes the contractual agreement that governs the parties rights, roles and responsibilities with respect to performance of the contract.

28 PRIME/SUBCONTRACTOR TEAMS SUBCONTRACT CONSIDERATIONS: Teaming Agreement should pave the way for the Subcontract Subcontract should address more specific details pertaining to the contract work Other things to consider in the Subcontract: Right to audit Payment process/procedures Subcontractor s recourse, if any Termination of Subcontract

29 PRIME/SUBCONTRACTOR TEAMS OSTENSIBLE SUBCONTRACTOR AFFILIATION: A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes where: 1. The large Subcontractor performs the primary and vital requirements of a contract/task order; OR 2. The Prime is unusually reliant on the large Subcontractor KEY POINTS: The SBA will consider all aspects of the relationship between the prime contractor and the subcontractor The ostensible subcontractor analysis is analyzed for a specific procurement and as of a very specific point in time (generally the date of the last proposal revision) For construction contracts, the inquiry is on whether the prime contractor retains management of the contract The primary and vital requirements are those associated with the principal purpose of the acquisition/procurement

30 PRIME/SUBCONTRACTOR TEAMS OSTENSIBLE SUBCONTRACTOR AFFILIATION: INCUMBENCY If Sub is incumbent, it will result in the relationship receiving greater scrutiny as it relates to the specific opportunity at issue TA TERMS TA with terms indicating the Sub may have more control over the relationship may lead to finding of affiliation OHA will look at whose employees will be supervising contract activities PROPOSAL TERMINOLOGY Pervasive use of the terms we or team may be a factor Repeated use of Subcontractor s logo, letterhead or other graphics will be taken into consideration PROPOSAL PREPARATION If Sub drafts proposal or does the heavy lifting for the proposal, that will be considered by OHA If Sub has final say/control over the proposal, that will also be considered

31 PRIME/SUBCONTRACTOR TEAMS OSTENSIBLE SUBCONTRACTOR AFFILIATION: DIVISION OF WORK The closer the work split is to 51/49 the greater scrutiny the arrangement will receive However, ostensible subcontractor affiliation found where Sub only to perform 23% of work PAST PERFORMANCE If complete reliance on another entity to establish relevant past performance, that can be indicative of unusual reliance The relevant inquiry is whether the prime can perform independently from the Sub MANAGEMENT Hiring of key personnel from Sub/Incumbent may be evidence of unusual reliance Naming Project Manager as employee from Sub will increase likelihood of ostensible sub claim EMPLOYEES Hiring of incumbent non-management personnel cannot be considered strong evidence of unusual reliance Wholesale personnel transfer from Incumbent to Prime may lead to unusual reliance

32 PRIME/SUBCONTRACTOR TEAMS RECENT DEVELOPMENTS: Limits on Subcontracting (SBA Proposed Rule) Change in the manner of calculating the limit on subcontracting Allows prime contractors to use similarly-situated entities to meet their own limits No ostensible contractor affiliation for similarly-situated entities Increased disclosure requirements if utilizing similarly-situated entity exception Increase penalties for violation the limits on subcontracting

33 PRIME/SUBCONTRACTOR TEAMS RECENT DEVELOPMENTS: Enforceability of Teaming Agreements Cyberlock Consulting v. Info Experts (E.D. Va, April 3, 2013) FACTS IE (prime) and Cyberlock (sub) entered into a Teaming Agreement (TA) The TA had a 51/49 work split (no specifics) The provided that if contract was awarded, the parties would negotiate a subcontract in good faith and provided for termination if parties unable to agree after a reasonable period of negotiations Parties were unable to agree on a subcontract after a month of negotiations Cyberlock sued IE for breach of contract and fraud DECISION Court said the TA was unenforceable Any language in the TA which seemed to indicate mandatory award of subcontract was modified by terms indicating that award is contingent upon further negotiations As such, the Court finds that the post-award obligations in the TA unambiguously set out an agreement to negotiate in good faith to enter into a future subcontract. As discussed above, such an agreement is precisely the type of agreement to agree that has consistently and uniformly been held unenforceable

34 PRIME/SUBCONTRACTOR TEAMS BEST PRACTICES: Have a strategy in place Do a proper analysis and evaluation Do your due diligence on teaming partners Beware of one-size fits all contracts Attach a draft Subcontract to your Teaming Agreement Include a mechanism which would allow for reduction of work to Subcontractor to avoid violating limits on subcontracting Don t be afraid to negotiate terms Be as specific as possible in your contracts

35 PRIME/SUBCONTRACTOR TEAMS JOINT VENTURES: A joint venture is an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally. [13 CFR (h)]

36 JOINT VENTURES JOINT VENTURE REGULATIONS: 13 CFR (h)(3) Small business/small business team JV for small business set-aside 13 CFR (a)/Non 8(a) JV for 8(a) set-aside 13 CFR (b) SDVOSB/small business JV 13 CFR WOSB/small business JV 13 CFR HUBZone/HUBZone JV

37 JOINT VENTURES MAIN CHARACTERISTICS: Co-Management Profits and Losses are Shared Limited Duration BIDDING AS A JV: The JV is the offeror/bidder JV should be formed before bidding/submitting a proposal The JV Agreement should provide for contract performance

38 Joint ventures JV CONSIDERATIONS: Small business must be managing (lead) venturer and project manager Small business must perform percentage of work (not including administrative functions) A certain percentage of profits may need to go to the small business JV agreement may need to include certain terms JV may need to show benefit to small business There may be registration and reporting requirements In some cases, SBA pre-approval required for JV agreement

39 Joint ventures JV MANAGEMENT & STRUCTURE: What will the management structure be? Which party responsible for negotiating contracts? What will the division of work be for contracts? How will project management be handled? What equipment and facilities will each be providing?

40 Joint ventures JOINT VENTURES SET ASIDE PROGRAMS: 8(a) SET ASIDE One firm 8(a) certified All partners are small, unless in Mentor-Protégé program SBA must approve JV agreement 8(a) firm must manage JV and the project 8(a) must benefit from JV and bring something to the JV SDVOSB SDVOSB must be managing venturer and employ project manager SDVOSB must get 51% of net profits JV agreement but specify performance responsibilities SDVOSB can form separate entities under 13 CFR 103(h) SDVOSB subcontractors may be used to meet limitations on subcontracting performance requirements JV for VA contracts must be pre-approved HUBZONE All partners must be HUBZone and small Contract must meet certain size requirements Revenue based size standard Contract must exceed ½ of the size standard Employee based size standard Contract must exceed $10 million If contract doesn t meet size requirements, JV may still qualify as long as two firms, combined, are small

41 Joint ventures JOINT VENTURE AGREEMENTS: Purpose of the Joint Venture Designation of small business as managing venturer Not less than 51% of net profits earned by JV will be distributed to the small business participant Responsibilities of the parties Parties must ensure performance of the Government contract Designation that accounting/administrative records are kept by managing venturer and requirement that managing venturer retain records of contracts completed by JV Performance of work

42 Joint ventures JOINT VENTURES: ADVANTAGES Lets businesses combine capabilities to increase competitiveness Provide government with best combination of performance, cost and delivery Minority member can exert more control over contract performance to protect its interest Allows parties access to contracts they might not otherwise have been able to pursue

43 Joint ventures JOINT VENTURES: DISADVANTAGES Officials not familiar with JV model may have concerns about control, authority and accountability May be more difficult to terminate the relationship than a prime/subcontract relationship All liabilities shared by all joint venture members and it may be challenging for members to operate as one entity Lead contractor (large business) may often have to give up substantial control

44 Joint ventures EXCEPTIONS TO AFFILIATION FOR JOINT VENTURES: SMALL BUSINESSES 8(a) JV PARTNER MENTOR-PROTÉGÉ Each JV partner is a small business under the appropriate NAICS code; AND The contract is bundled or consolidated; OR Employee-Based Standards the dollar value of the procurement exceeds $10 Million; OR Receipts-Based Standards the dollar value of the procurement exceeds ½ the size standard At least one JV partner is an 8(a) participant For 8(a) contracts, the JV must be approved by SBA at the time of award. For 8(a) contracts, the contract is subject to performance of work limitations: (1) as between the JV partners; and (2) as between the JV and any subcontractors. The Protégé must qualify as small under the appropriate NAICS code For 8(a) contracts, the JV must be approved by SBA at time of award. For 8(a) contracts, the contract is subject to performance of work limitations

45 Joint ventures RECENT DEVELOPMENTS: SBA PROPOSED RULE Clarification of informal joint venture Requirement that joint ventures be in writing Elimination of populated joint ventures for formal joint ventures Annual certification of compliance for all joint venturers Should all joint ventures be a separate legal entity?

46 Joint ventures RECENT DEVELOPMENTS: SBA PROPOSED RULE (CONT) Allow joint ventures for any project regardless of size Proposing similar rules for all small business programs Approval of 8(a) joint ventures at any time Allow size protests of an SBA-approved 8(a) JV Tracking of joint ventures (and contract awards)

47 MENTOR-PROTÉGÉ The mentor/protégé program is designed to encourage approved mentors to provide various forms of business development assistance to protégé firms. [13 CFR ] PURPOSE IS TO: Enhance the capabilities of the protégé Assist the protégé with meeting the goals established in its SBA-approved business plan Improve the protégé s ability to successfully compete for contracts

48 MENTOR-PROTÉGÉ MENTOR REQUIREMENTS: MENTOR Can be a Graduated 8(a) firm, Current 8(a) firm in the transitional stage, a small business, a large business, a non-profit entity Must be able to provide valuable assistance to a protégé Must demonstrate favorable financial health and good character Must be in good standing (not on the federal list of debarred or suspended contractor firms) Make a commitment to assist its protégé for a least one year

49 MENTOR-PROTÉGÉ PROTÉGÉ REQUIREMENTS: 8(a) BD Program Participant PROTEGE Must meet at least one of the following three conditions: Be in the developmental stage of the 8(a) BD Program, OR Have never received an 8(a) contract, OR Be less than half the size of the small business size standard corresponding to its primary NAICS code The 8(a) firm must: Be in good standing with SBA Program requirements AND Be current with all SBA reporting requirements Protégés may generally have only one mentor at a time (SBA may authorize a second mentor after review of the request)

50 MENTOR-PROTÉGÉ PROGRAM PARTICIPATION AND COMPLIANCE: SBA must approve all 8(a) mentor-protégé relationships Mentor and Protégé firms need a written agreement that is reviewed and approved by SBA Protégé must report status of agreement to SBA during its annual review and SBA will use this information to determine continued eligibility SBA must approve all changes made to the agreement Various consequences for mentor who does not provide assistance set forth in the mentor/protégé agreement, including: termination of the agreement; ineligibility to act as a mentor; and, SBA recommend a stop work order for mentor/protégé contract(s)

51 MENTOR-PROTÉGÉ PROGRAM BENEFITS: TECHNICAL AND MANAGEMENT ASSISTANCE Mentor provides protégé with its expertise, resources, and capabilities CONTRACTING Mentor provides assistance relevant to performance of non-8(a) contracts to help protégé develop its capabilities Mentor can enter into jointventure arrangements with protégé to compete for, and perform on, certain federal government contracts Subcontracting opportunities FINANCIAL ASSISTANCE Equity investments and/or loans Mentors can own up to 40% in of the protégé to help raise capital

52 SBA PERSPECTIVE BEST PRACTICES FOR SMALL BUSINESS TEAMING: Ensure teaming agreements are carefully drafted and evaluated to prevent concerns with actual or negative control, affiliation, or loss of small business status Be involved with the drafting of teaming agreements, don t rely on others Put everything in writing, avoid verbal promises Be sure you understand the terms and conditions of your contract with the prime contractor

53 SBA PERSPECTIVE CONSIDERATION REGARDING MENTOR-PROTÉGÉ PROGRAM: 8(a) firms should consult with their SBA District Office Business Opportunity Specialist BEFORE they apply for the 8(a) BD Mentor- Protégé program Review all requirements of the program, including the requirements of the written agreement at 13 CFR Keep in mind that assistance provided through the agreement must help the protégé firm meet the goals established in its 8(a) firm s SBA-approved business plan Ensure you submit all required information and documents with your annual review and report any changes to the SBA to ensure compliance

54 HOW HCG CAN HELP HOLOMUA CONSULTING GROUP, LLC CAN HELP YOU: Draft and review teaming agreements that are enforceable Draft and review contracts/subcontracts Assist with formation of JVs and JV agreements Address potential concerns with affiliation Ensure compliance with regulations

55 QUESTIONS & NEXT STEPS Make an appointment with us before you leave Think about it and call us with any questions Tell a friend about our valuable services

56 MAHALO THANK YOU FOR ATTENDING TODAY S WORKSHOP! For more information about Holomua Consulting Group, LLC and future workshops, please visit our website at Koapaka Street, Suite F Honolulu, Hawaii P: (808) F: (808) info@holomuaconsulting.com