1. Traps and Tips:
Subcontracts and Joint Ventures
Presented By:
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, LLP
www.smithlaw.com
dhayden@smithlaw.com jmoore@smithlaw.com
(919) 821-6755 (919) 821-6688
www.smithlaw.com
©2012 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.

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Joint Ventures
• “[C]ompanies form a partnership or joint venture to act as a
potential prime contractor” FAR 9.601(1).
• Key Word: Partnership
• Members share profits and losses
• Members each has authority to:
– make decisions that bind the joint venture
– interact with government
• Joint Venture has the contract with the government
– not each member
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Contractor/Subcontractor
• Prime contractor enters into contract with government. FAR
9.601(2).
– Prime subcontracts with other team member
– No “privity” between the government and subcontractor
• Only Prime interfaces with government
– Prime controls contract
– Subcontractor duties are defined in subcontract
• No sharing of profits and losses
• Subcontractor paid according to subcontract only
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Why the Government Encourages Teaming
• Groupings to compete for a government contract. FAR 9.602.
– “[c]omplement unique capabilities”
– “[o]ffer the Government the best combination of performance, cost, and
delivery for the system or product being acquired”
• Government allows teaming agreements, so long as they follow government
regulations. FAR 9.603.
• Versus traditional B2B world, where joint ventures and prime/subcontract
relationships are:
– Less regulated
– Without size standards
– Without governmental oversight.
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Pros & Cons of a Joint Venture
• Pros
– JV member has increased stature (versus sub)
– Shared control
• Cons
– Joint responsibility for performance (vs. subcontract)
– Lead/Larger team member gives up some control to other
team member
– Termination/unwinding JV more complicated
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Disputes with Your Team Member –
Breach of an Enforceable Contract?
• Does your teaming agreement release both sides if the bid is not
awarded?
• Does your teaming agreement provide for exclusivity of dealing?
• What if you and your partner ultimately cannot agree on a later
subcontract?
• Ulliman Schutte Construction v. Emerson Process Management Power
& Water Solutions, (D.C. Cir.) subcontractor lost because parties could
not agree on terms of contract and teaming agreement said both sides
would be released from their obligations in the event of a failure to
negotiate a subcontract.
• Good faith?
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Drafting tips and techniques
• Have a written teaming agreement (required under proposed
RFP)
• Identify the contract you are bidding on
• Require the prospective team member to be awarded
subcontract instead
• Have subcontract terms well-negotiated before submitting bid
– Divide team member functions
• Who will prepare proposal? Who will pay for it?
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Drafting tips and techniques
• Non-poaching, non-compete, non-solicit?
• Exclusivity?
• Confidentiality?
• Consider favorable choice of law provisions?
– Forum Selection? Arbitration/mediation?
• If there is termination, who owns the confidential data or the
intellectual property?
• If there is a dispute, will one party indemnify another?
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Drafting tips and techniques
• Preference contract?
– Identify the preference, state the percentages
• SBA approval required?
– Make contract subject to SBA approval
• Termination:
– If one side decides not to pursue the contract
– Government disapproval of sub
– Government non-award or cancellation of RFP
– Suspension/debarment/proposed debarment
• Impossibility; mutual agreement; default
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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J.V.’s how to address deadlock
• Division of Labor
• Banking
• Veto rights
• Dissolution/Buy-out
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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Trust, Trust, Trust!
©2011 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
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12. Questions?
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, LLP
www.smithlaw.com
dhayden@smithlaw.com jmoore@smithlaw.com
(919) 821-6755 (919) 821-6688
www.smithlaw.com
©2012 SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.