Tools for the Small Business – Non-Disclosure Agreements and Teaming Agreements

Contractors often seek strategic alliances with other contractors to complement their capabilities and increase their chances of winning a contract.  In forming such alliances, it is important to use the type of agreement that best fits your needs to ensure it is enforceable and not just an agreement to agree.

Prior to sharing details about your business with a potential business partner, it is wise for the parties to sign a Non-Disclosure Agreement, also referred to as a Confidentiality Agreement or NDA.  By executing a NDA, you are protecting your confidential information given to the other party as the other party will only be permitted to share or use the information as directed by the NDA. Key elements of a NDA are:  identifying the parties, defining what is deemed confidential, describing the confidentiality obligation of the party who receives the information, identifying things that are excluded from confidential treatment, such as public information, and stating the term of the NDA.  Once the parties agree upon the NDA, then they can get to work on the teaming agreement.

Joint Venture or Teaming Agreement

Contractors generally use either a joint venture agreement or a teaming agreement to accomplish their business arrangement.  When two or more companies jointly form a separate entity to act as the potential prime contractor, this is a joint venture. This article focuses on the second type of arrangement – the teaming agreement.

A teaming agreement is a tool for contractors when a prime contractor desires to work with one or more subcontractors to pursue a contract and requests the subcontractors to perform specific work on that contract if it is awarded to the prime contractor.

Unlike a joint venture, a teaming agreement allows the companies to remain as independent entities while working together to prepare the proposal and be successful in obtaining the contract award.  Many times the parties are very anxious to pull together the proposal and proceed, thinking they only need to put the basic terms on paper and work out the details of the subcontract agreement later if they win the contract.  It is unlikely this will be an enforceable teaming agreement, for without details regarding the terms of the subcontract agreement, it is merely an agreement to agree.

Unenforceable Teaming Agreement

The Cyberlock Consulting, Inc. v Information Experts, Inc., 2013 WL1395742 (E.D. Va. 2013) case exemplifies why it’s important to state in the teaming agreement the terms which will ultimately be incorporated in the subcontract agreement.  In that case, Cyberlock Consulting, Inc. (“Cyberlock”) entered into a teaming agreement with Information Experts, Inc. (“IE”), wherein IE would be the prime contractor if awarded the contract for security services. The teaming agreement said if the parties were successful in getting the prime contract awarded to IE, then IE would enter into a subcontract with Cyberlock.  The teaming agreement included general terms which described each company’s anticipated scope of work, but it did not include, as an exhibit or attachment, the actual subcontract agreement the parties intended to enter into.  In addition, the teaming agreement stated that either party could terminate it if the parties were unable to negotiate a subcontract agreement in good faith.

After IE received the contract, the parties attempted to negotiate a subcontract agreement without success.  IE then terminated the teaming agreement, and Cyberlock sued to enforce it.  The court determined the teaming agreement stated only a framework for negotiating a subcontract agreement sometime in the future and was, therefore, unenforceable because it was merely an agreement to agree.  Thus, it is very important that the teaming agreement include not only the parties’ intentions regarding the teaming agreement but also the subcontract agreement which they intend to sign on award of the contract to the prime contractor.

Checklist for an Enforceable Teaming Agreement:

The teaming agreement should:

1. state its purpose and specify the proposal that the parties are responding to;
2. describe each party’s role, not only with regard to proposal preparation but also the resulting subcontract agreement when the prime contract is awarded;
3. provide protection for the proprietary information and intellectual property of both parties;
4. set forth indemnification provisions;
5. state the term of the teaming agreement; and
6. incorporate, as exhibits, the request for proposal, each party’s proposal responsibilities, the subcontractor’s scope of services and the form of the subcontract agreement.