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If you are entering into a contract with another business or businesses to jointly tender for a project together without setting up a new entity, you will want to put in place a teaming agreement. This article will explore: 

  • what a teaming relationship is; 
  • how it differs from other types of other arrangements; and 
  • what a teaming agreement should encompass.

What Is a Teaming Relationship?

A teaming relationship forms when two or more companies, for example, Company A and Company B, choose to work together to tender for a project. If they win the project, Company A will contract directly with the project owner as the main contractor, and Company B will contract with company A as their subcontractor. You can find these relationships in the general commercial context and in public sector bids. 

The teaming relationship’s main benefits are that both parties will leverage each other’s expertise and resources to jointly bid on one project together. This is particularly helpful where two smaller businesses join together who may have otherwise not had the ability to tender on their own.

The parties have the ability to tailor the terms of the agreement based on the extent of the obligations they want to owe each other. They also provide a way for two companies to work together where they might have otherwise been hesitant to invest in a more formal financial and legal relationship, where they may set up a new company together.

How Is it Different From Joint Venture?

A teaming relationship forms as a kind of sub-contractor relationship. Both parties will work on the tender together, and the project owner will be aware of their joint proposal. Once they win the project, one party will be the main contractor, and one party will be the sub-contractor for the project. The award of the main contract will usually be subject to the two parties forming a teaming agreement and submitting this with their bid. 

However, this differs from a more formal joint-venture relationship, where two parties will form a new separate entity for the purposes of working on a project together. This may be advantageous where the parties are comfortable making decisions together and want to mitigate the risk to their separate business entities.

Setting up a joint-venture usually suggests that the two parties seek to have a longer-term relationship, and they are both prepared to take on shared risk.

What Should Be in a Teaming Agreement?

A clearly drafted teaming agreement is extremely important to ensure that both parties clearly understand their obligations.

The key clauses in a teaming agreement include the following:

Purpose and Scope of the Agreement 

This will briefly outline the clause background to the agreement and the purposes for which both parties are joining together. 

Prime Contractor Responsibilities

These clauses outline the responsibilities and obligations that the prime contractor has to the subcontractor. It will include promises to: 

  • assist the subcontractor with any requests; 
  • ensure that they attend meetings when the subcontractor reasonably requires; and 
  • provide competently skilled employees to carry out the works under this agreement. 

Subcontractor Responsibilities 

Similarly, these clauses will outline the responsibilities and obligations that the subcontractor has to the prime contractor. It will include similar promises to: 

  • assist the other party in responding to any requests; 
  • attend meetings when required; and 
  • ensure that appropriately qualified workers will undertake any work during the course of the project.

Profit Distribution

This will outline how money from the project is to be shared between the prime contractor and subcontractor. 

Confidentiality

During the course of the project, both parties will be exposed to confidential information about each other’s businesses. This will include things like: 

  • arrangements with suppliers; 
  • financial information; and 
  • know-how and trade secrets. 

This clause will require both parties to keep confidential any confidential information they are exposed to and will often survive any termination of the contract. 

Intellectual Property 

Intellectual Property clauses will outline how each party can use the intellectual property of each other’s businesses. They will also cover what happens to the intellectual property created during the project.

Limitation of Liability and Indemnification

The teaming agreement must include limitation of liability and indemnification clauses. This is so that each party understands the level of risk they will be responsible for when entering the arrangement. 

Non-circumvention/ Non-compete 

When partnering with another company for a tender, the last thing you would want to do is for them to pull out and tender on their own. These clauses will usually prohibit this and stop either party from attempting to solicit clients or employees from the others’ business.

Termination Provisions

This will outline in what scenarios either party can terminate the contract and what clauses will survive if the agreement is terminated.

Disputes Resolution 

This clause is important to have in the agreement, as it will outline a method of resolution if a dispute arises between the parties. For example, it may require both parties to mediate to try and come to a resolution before they can terminate the agreement. 

Key Takeaways 

If you are looking to tender for a contract with another party but do not wish to enter into a joint venture, you may decide to opt into a teaming arrangement. Additionally, it is highly recommended that you have a teaming agreement prepared. This agreement will outline the rights and responsibilities of both parties under the agreement. In fact, it will usually be a requirement that you have one in order to win the tender. If you need assistance with preparing or reviewing a teaming agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

What is a teaming relationship?

It is formed as a kind of sub-contractor relationship where parties work on the tender together. Further, the project owner is aware of their joint proposal.

What is a joint venture?

This is where two parties form a new separate entity in order to work on a project together. Usually, these parties seek a longer-term relationship.

Why is a teaming agreement important?

A clearly drafted teaming agreement helps to ensure that both parties’ obligations are clearly understood. By having clauses to refer back to it protects against potential risks.

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