The Waterfront Partnership

Prime-contractors, sub-contractors and teaming agreements

Due to the very large nature of many of the contracts advertised in OJEU, it is very common for commercial organisations to decide to jointly bid for public sector work.

Teaming agreements are used when companies wish to team together to bid on a procurement opportunity. Very often teaming up will be essential, when customers have prepared a tender covering their requirements and expect the bidder to meet those requirements in full. The most compliant bid has the greatest chance of success and in complex projects the scope of products and services will fall across the capabilities of a number of different suppliers. But the customer would much prefer a "one-stop shop" when it comes to dealing with the suppliers and managing the project. In the bid response, it would like to see one joint solution that fulfils the needs of the entire project.

Typically, but not always, a larger organisation will be the "prime-contractor" who is actually bidding for the work, supported by one or more "sub-contractors" providing specific products or expertise.

Both the prime-contractor and the sub-contractor are potentially at risk if this relationship is not made contractually binding before any tender is submitted.

For example, X has the hardware, Y has the software and Z provides the implementation services. This calls for a jointly managed response to the bid, where each company stands the best chance of winning.

The most important points about teaming agreements are:

• who will be prime contractor (the one who takes the lead and contracts with the customer) and who will be subcontractor?
• to make sure that if you are not the prime, your company isn't committed to contract terms that you cannot deliver; you must have the opportunity to review the customer's RFP (Request for Proposal) or bid documents, to put your own terms forward in the bid process, or to ensure you are happy with the terms put forward by the prime on behalf of itself and its subcontractors
• is your teaming agreement exclusive, or can you put bids in jointly with a number of other suppliers? (and if it is exclusive, at what points can you terminate the agreement if there are problems with your joint bid?)
• to state clearly the position on liability (often both parties will seek to exclude their liability completely, other than for breaches of confidentiality and intellectual property)
• in most cases, to specify that each side bears its own bid preparation costs; one thing to be alert for is tenders that require a "bid bond" (a form of security to protect the customer, sometimes in the form of a bank guarantee) to be paid to the customer; often to try and pass on the risk and cost a prime contractor will want its subcontractors to provide bid bonds in proportion to their respective deal sizes.

Although they seem straight forward, teaming agreements can raise complex issues. But the good news is that they are usually quite short and do not take too long to draft or negotiate.