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Team arrangements are commonly made by contractors in connection with bids for public works projects, particularly federal ones. A number of factors are providing new incentives for construction firms to partner up in order to make their services or bids more attractive. These factors include competition for a smaller pool of projects in a down economy and new industry opportunities, such as state and federal incentive programs for green building and renewable energy projects.

Why enter into a team agreement?

Most parties enter into team agreements because it is commercially beneficial to do so, usually because each party brings to the table different strengths that, when combined, make the team more competitive than either party could be on its own. In some circumstances, the customer (i.e., a government agency) may require a team arrangement in order to qualify to bid.

Get it in writing

Whatever the reason for entering into a team arrangement, it is prudent to formalize the relationship in the form of a written agreement. Written contracts not only establish the nature of the relationship between the parties and the commercial terms, but they also distribute risk and reward between the parties. All team agreements are different. Do not assume that the previous form of agreement will fit the next situation.

Confidentiality

When entering discussions with another party to decide whether to move ahead with a team arrangement, it is usually necessary to disclose or obtain from the prospective counterparty certain proprietary and confidential information. Before doing so, it is advisable to enter into a nondisclosure/confidentiality agreement that sets the ground rules for information exchange and the consequences for unauthorized disclosure. Such agreements may be simple or quite complex, depending on the preferences of the parties and the nature and sensitivity of the information that may be disclosed. The team agreement itself should address confidentiality, in which case the terms of a pre-existing nondisclosure agreement may be incorporated by reference.

Assessing your potential teammate

Before entering into any formal team agreement, be sure to carefully vet potential teammates. Seek answers to questions such as:

• How healthy is their balance sheet?
• What is their reputation in the market?
• What assets, contacts, skills or experience do they bring to the relationship?
• Do they have the appropriate licenses and authorizations to perform the anticipated work or services?
• Have they been involved in any disputes or litigation with past partners?
• What are their weaknesses?
• What are their expectations?
• Why do they want to team with us?
• Have they been blacklisted or investigated by any relevant governmental contracting agency?
• Could this relationship cause us to breach any other agreements?
• Will the relationship negatively impact our relationships with other business partners?

Beware of antitrust issues

It is critically important to review the potential legal implications of any proposed team agreement with legal counsel. It is not uncommon for parties to inadvertently fall afoul of antitrust laws, consumer protection laws or anti-collusion regulations or bidding requirements. This is the case, in particular, when the parties are or have previously been competitors in the same industry, but it also depends on the number of competitors and their size, the proposed nature of the collaboration and a number of other factors. Suffice it to say that pitfalls exist for the unwary.

Carefully outline the scope of the relationship

Too often the parties to a team arrangement fail to take the time to carefully outline the nature of the relationship, usually because they believe they already fully understand it and how it will work. All too often this proves not to be the case. Some key issues that should be considered and addressed in team agreements are (and this is not an exhaustive list):

• Is the relationship for a single project or purpose, or will it be ongoing?
• Is the relationship exclusive? (Note that some federal agencies prohibit the use of exclusive team arrangements)
• Can a party compete separately against a joint bid by the team? If so, will a firewall be set up between internal bidding teams?
• Is the relationship to be limited to a specific geographic territory?
• How will potential business opportunities and profits be allocated?
• What are the triggers for collaborating on a given project?
• What contractual relationship will the teammates have in relation to the customer on a given project? Will the parties form a joint venture or will one party subcontract to the other?
• Will one party always be the prime contractor and the other a subcontractor? Or can it change on a project-by-project basis? (This sort of flip-flopping may be prohibited by some laws, regulations or bidding requirements)

Anticipate and address disputes

The team agreement provides a critical opportunity to address how the relationship is to be ended and how disputes are to be resolved, issues that parties often are uncomfortable discussing at the beginning of a relationship when collaboration is at its height. If there is a dispute down the road, it will likely be decided by an impartial third party and that person will need to understand how the relationship was intended to work. In this regard, contract recitals are a useful tool for providing background and context to the agreement. However, there is no substitute for a well-drafted and suitably detailed scope to remove the guesswork from the decision of an arbitrator or judge.

Adam Walters is an attorney in the construction and design practice group at Stoel Rives LLP. Contact him at 206-386-7675 or [email protected].