1. 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

2. 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
2

3. I.
Teaming
Arrangement
Basics
3

4. Teaming
Arrangements
Joint Venture (JV)
FAR 9.601(1)
Teaming Agreement
Prime / Subcontract
(SubK)
FAR 9.601(2)
4

5. 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).
5

6. 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.
6

7. 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
7

8. 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
8

9. 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
9

10. 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
10

11. 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
11

12. III.
The
Cyberlock
Decision
(April
3,
2013)
12

13. 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.
13

14. 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.
14

15. IV.
Dra$ing
a
JV
Agreement
(Key
ConsideraVons)
15

16. 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
16

17. 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)
17

18. Governance
of
the
JV
• 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
18

19. Financial
Decisions
of
the
JV
• 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.
19

20. Business
Decisions
of
the
JV
•
•
•
•
•
•
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)
20

21. Share
and
Interest
Transfer
RestricVons
of
the
JV
• 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
21

22. ConfidenVality
•
•
•
•
•
Separate
nondisclosure
agreements
–
Benefits
Protect
Proprietary
InformaUon
Term
Survivability
IP
and
Technology
protecUon
22

23. IndemnificaVon
&
Insurance
• Mutually
focused
provisions
and
protecUons
• What
should
be
covered
under
insurance
23

24. NonsolicitaVon
and
Noncompete
• Most
complicated
and
sensiUve
to
negoUate
• Address
exposure
of
your
greatest
assets
–
employees
• Exposure
to
compeUUon
• Are
restricUons
reasonable
• DissoluUon
24

25. Exit
and/or
TerminaVon
Rights
• 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
25

26. Closing
Process
of
the
JV
•
•
•
•
•
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
26

27.
V.
Dra$ing
a
Teaming
and
SubK
Agreement
(Key
ConsideraVons)
27

28. Teaming
Agreements
• 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
28

29. Subcontract
Agreements
I
• 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)
29

30. Subcontract
Agreements
II
•
•
•
•
•
Breaches
NoUces
to
parUes
TerminaUon
(voluntary
and
involuntary)
Venue
–
will
it
be
exclusive
Choice
of
Law
–
what
law
se=les
disputes
30

31. ConfidenVality
•
•
•
•
•
Separate
nondisclosure
agreements
–
Benefits
Protect
Proprietary
InformaUon
Term
Survivability
IP
and
Technology
protecUon
31

32. IndemnificaVon
&
Insurance
• Mutually
focused
provisions
and
protecUons
• What
should
be
covered
under
insurance
32

33. NonsolicitaVon
and
Noncompete
• Most
complicated
and
sensiUve
to
negoUate
• Address
exposure
of
your
greatest
assets
–
employees
• Exposure
to
compeUUon
• Are
restricUons
reasonable
33

34. Dispute
ResoluVon
• MediaUon
• ArbitraUon
Ø An
express
arbitraUon
clause
Ø Mandatory?
• LiUgaUon
• Venue
• Exclusive
jurisdicUon
• Costs
34

35.
Trust,
Trust,
Trust!
35

36. QuesVons?
Smith,
Anderson,
Blount,
Dorse=,
Mitchell
&
Jernigan,
LLP
www.smithlaw.com
Jackson
W.
Moore
jmoore@smithlaw.com
(919)
821-­‐6688