Teaming and Limitations on Subcontracting in Federal Contracts
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Teaming and Limitations on Subcontracting in Federal Contracts

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10th Annual Defense Trade Show

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Teaming and Limitations on Subcontracting in Federal Contracts Teaming and Limitations on Subcontracting in Federal Contracts Presentation Transcript

  • 1Teaming and Limitations onSubcontracting in FederalContractsJennifer M. MillerWyrick Robbins Yates & Ponton LLPRaleigh, North Carolina
  • 2Overview• Why Team? Joint Venture or Subcontract?• Joint Venture Requirements Where One JV Partner Is a “Preference Company”• Subcontracting Limitations Where Prime Is a “Preference Company”• Teaming Agreements – Key Provisions• Joint Venture Agreements – Key Provisions
  • 3Why Team?• Combined capabilities• Access to set-aside contracts• Past performance and experience in a new area
  • 4 Joint Venture or Subcontract?• Key indicator is the sharing of • Cannot share profits and losses profits and losses• Both companies can deal with • Subcontractor has no privity the Government with the Government• Both parties can have relatively • Subcontractor cannot “control” equal control (subject to some the contract limitations when certain “preference companies” are involved)Where a “preference company” is involved, SBA requirements may dictate the form that your team must take
  • 5Joint Venture RequirementsWhere One JV Partner Is a“Preference Company”
  • 6Joint Venture Requirements: SmallBusinesses (13 C.F.R. § 121.103(h)(3))• SBs can JV on a SB set-aside contract if: • JV partners’ combined average annual revenues are less than the applicable size standard, OR • Both JV partners are under the size standard, AND • The procurement is a “bundled” requirement, OR • The contract value exceeds half the size standard for the contract (if a revenue-based size standard) or it exceeds $10 million (if an employee-based size standard)• Repeated JV relationships could lead to a finding of general affiliation
  • 7Joint Venture Requirements: HUBZoneSBCs (13 C.F.R. § 126.616)• A JV bidding on a HUBZone contract must be comprised only of HUBZone SBCs. In addition, • JV partners’ combined average annual revenues must be less than the applicable size standard, OR • Each HUBZone SBC must be small under the size standard for the contract, AND the value of the procurement must exceed half the size standard for the contract (if a revenue- based size standard) or it must exceed $10 million (if an employee-based size standard)• The JV itself does not need to be certified as a HUBZone SBC
  • 8 Joint Venture Requirements: 8(a) SBCs (13 C.F.R. § 124.513)• An 8(a) SBC and a non-8(a) company can JV together on an 8(a) set-aside contract if: • JV partners’ combined average annual revenues are less than the applicable size standard; OR • Both companies are small under the size standard for the contract, AND at least one 8(a) participant in the JV is less than half the size standard for the contract, AND the contract value exceeds half the size standard for the contract (if a revenue-based size standard) or it exceeds $10 million (if an employee-based size standard); OR • The JV is between a protégé firm and its approved mentor, and the protégé is small under the size standard for the contract (this is the only instance where a large business can JV with a preference company)
  • 9Joint Venture Requirements: 8(a) SBCs(13 C.F.R. § 124.513) • JV Agreements involving 8(a) companies must be approved by SBA before the contract is awarded • To be approved, the 8(a) company must lack the capacity to perform the contract on its own, and the JV Agreement must be fair and equitable and of substantial benefit to the 8(a) company • If the 8(a) brings little to the relationship other than its 8(a) status, SBA will not approve the Agreement
  • 10Joint Venture Requirements: 8(a) SBCs(13 C.F.R. § 124.513) • SBA’s regulations set out specific provisions that must be included in the JV agreement (13 C.F.R. § 124.513(c)): • An 8(a) SBC must be the managing venturer • An employee of the 8(a) SBC must be the project manager on the contract • A special bank account must be established for the JV, and all parties’ signatures must be required for withdrawals
  • 11Joint Venture Requirements: 8(a) SBCs(13 C.F.R. § 124.513) • That the 8(a) SBC will meet the performance of work requirements in the regulations: • Unpopulated JV: 8(a) must perform at least 40% of the work performed by the JV; must be more than administrative or ministerial functions • Populated JV: 8(a) must demonstrate what it will gain from performance of contract and how performance will assist in its business development
  • 12Joint Venture Requirements: SDVOSBCs(13 C.F.R. § 125.15(b))• An SDVOSBC can JV with other SBCs to perform an SDVOSBC contract if: • JV partners’ combined average annual revenues are less than the applicable size standard, OR • Each JV participant is small under the size standard for the contract, AND the contract value exceeds half the size standard for the contract (if a revenue-based size standard) or it exceeds $10 million (if an employee- based size standard)
  • 13Joint Venture Requirements: SDVOSBCs(13 C.F.R. § 125.15(b))• The JV Agreement need not be approved by SBA, but it must include specific terms, including (13 C.F.R. § 125.15(b)(2): • An SDVOSBC must be the managing venturer • An employee of the SDVOSBC must be the project manager on the contract • Not less than 51% of the profits must go to the SDVOSBC(s)
  • 14 Joint Venture Requirements: WOSBs and EDWOSBs (13 C.F.R. § 127.506) and SDBs (13 C.F.R. § 124.1002(f)• A JV can submit an offer on a WOSB, EDWOSB or SDB contract (or claim a SDB price preference) if: • The WOSB of EDWOSB JV participant is designated in CCR and ORCA as a WOSB or EDWOSB OR the SDB JV participant has an SDB certification from SBA or has submitted an application for SDB certification; AND • JV partners’ combined average annual revenues are less than the applicable size standard; OR • Both JV partners are small under the size standard, AND the contract value exceeds half the size standard for the contract (if a revenue-based size standard) or it exceeds $10 million (if an employee-based size standard)
  • 15Joint Venture Requirements: WOSBsand EDWOSBs (13 C.F.R. § 127.506) and SDBs (13C.F.R. § 124.1002(f) • The WOSB, EDWOSB or SDB must be the managing venturer of the JV, and an employee of the WOSB, EDWOSB or SDB must be the project manager on the contract • The WOSB, EDWOSB or SDB must perform “a significant portion” of the contract work
  • 16Subcontracting LimitationsWhere Prime Is a “PreferenceCompany”
  • 17Subcontracting Limitations: SB, 8(a),WOSB, EDWOSB, or SDB Price Preference Service (non- General construction Special trade Supplies or products construction) contractor constructionPrime must perform Prime must perform Prime must perform Prime must perform50%+ of cost of the 15%+ of the cost of 25%+ of the cost of 50%+ of the cost ofcontract incurred for the contract (not the contract (not manufacturing (not personnel with its including the cost of including the cost of including cost of own employees materials) with its materials) with its materials) must be own employees own employees performed by the Prime
  • 18Subcontracting Limitations: SDVOSBCs Service (non- General construction Special trade Supplies or products construction) contractor constructionPrime must perform Prime must perform Prime must perform Prime must perform50%+ of cost of the 15%+ of the cost of 25%+ of the cost of 50%+ of the cost ofcontract incurred for the contract (not the contract (not manufacturing (not personnel with its including the cost of including the cost of including cost of own employees or materials) with its materials) with its materials) must be employees of other own employees or own employees or performed by the SDVOSBCs employees of other employees of other Prime or other SDVOSBCs SDVOSBCs SDVOSBCs
  • 19Subcontracting Limitations: HUBZoneSBC (Set-Aside or Price Preference) Service (non- General construction Special trade Supplies or products construction) contractor constructionPrime must perform Prime must perform Prime must perform Prime must spend at50%+ of cost of the 15%+ of the cost of 25%+ of the cost of least 50% of thecontract incurred for the contract (not the contract (not manufacturing costs personnel with its including the cost of including the cost of (not including the own employees or materials) with its materials) with its cost of materials) in employees of other own employees. own employees. a HUBZone. One or HUBZone SBCs 50% of the cost of 50% of the cost of more HUBZone SBCs the contract incurred the contract incurred may combine to for personnel with its for personnel with its meet this own employees or own employees or requirement. employees of other employees of other HUBZone SBCs. HUBZone SBCs.
  • 20Subcontracting Limitations: RelevantDefinitions• "Cost of the contract" – all allowable direct and indirect costs allocable to the contract, excluding profit or fees• "Cost of contract performance incurred for personnel" – direct labor costs and any overhead which has only direct labor as its base, plus the Primes G&A rate times the labor cost• "Cost of manufacturing" – costs incurred by the firm in the production of the end item being acquired. Includes the direct costs of fabrication, assembly, or other production activities and indirect costs which are allocable and allowable. Cost of materials and profit or fee are excluded.• "Cost of materials" – includes costs of the items plus shipping and handling costs, special tooling, special equipment, and construction equipment purchased for and required to perform on the contract
  • 21Teaming Agreements – KeyProvisions
  • 22Teaming Agreements – Key Provisions1. Identify the contract at issue2. Identify whether the parties will form a JV or prime/sub relationship3. Representation by a preference partner that it qualifies for the applicable preference and that it will perform the amount of work required by the relevant regulation
  • 23Teaming Agreements – Key Provisions4. Allocating responsibility (who will do what?) •Division of Statement of Work •Preparation of proposals •Negotiation of contracts5. How will proposal costs be handled?6. Confidentiality provision
  • 24Teaming Agreements – Key Provisions7. Exclusivity clause - parties will only team with each other on the contract • Exception if one partner decides not to pursue the contract? • Exception if sub not approved by Government • Each side could have reasons for not wanting exclusivity • Prime may want to be able to sub work to others if price too high or work unsatisfactory, or if prime wants to do work in- house • Sub might want to team with other primes, in case this prime is not awarded the work • If not exclusive, the agreement needs provisions to protect the parties confidential information from other partners
  • 25Teaming Agreements – Key Provisions8. If prime/sub teaming agreement, basic subcontracting terms (agreement to agree might not be enforceable): • That subs work will be performed IAW prime contract requirements and SOW • How price will be determined (relationship to sub’s price in proposal) • When sub will be paid • That subcontract will automatically renew if contract option is exercised or contract is extended • T/C of subcontract only in the event of T/C by the government • Inclusion of mandatory flow-down provisions
  • 26Teaming Agreements – Key Provisions9. Other prime/sub issues: •Deadline to negotiate subcontract? •Duty to proceed/duty to pay during subcontract negotiations (including payment terms: NTE price? Cost only? Cost plus fee?) •Award of subcontract contingent on government approval
  • 27Teaming Agreements – Key Provisions10.Non-solicitation provision11.Disputes provision •Informal attempt to resolve? •Mediation? •Arbitration? •Silence?
  • 28Teaming Agreements – Key Provisions12. Termination provisions • Ensure that certain provisions survive termination of the Teaming Agreement: • Protection of proprietary data • Rights in mutually-developed data, patents or copyrights • Indemnity obligations • Non-solicitation provisions
  • 29Teaming Agreements – Key Provisions12. Termination provisions, continued • Possible Grounds for Termination: • Failure to win prime contract • Government’s withdrawal or cancellation of RFP • Suspension/debarment/proposed debarment of either company • Either party decides not to pursue the contract (?) • Bankruptcy or insolvency of either company • Government disapproval of sub
  • 30Teaming Agreements – Key Provisions12. Termination provisions, continued • Possible Grounds for Termination, continued: • Failure to agree on subcontract within "x" period of time • Loss of key employees by a team member • Award of a subcontract • Impossibility of performance • Mutual agreement • Default
  • 31Joint Venture Agreements – KeyProvisions
  • 32Joint Venture Agreements – KeyProvisions1. Parties respective shares of the JV2. Name of the JV3. JVs place of business4. Business opportunities to be pursued (3 contract awards over 2 years rule; possibility of forming additional JVs)5. Management structure of JV6. Identification of key personnel (especially if PM is required to be an employee of a preference partner)
  • 33Joint Venture Agreements – KeyProvisions, continued7. Assignment of responsibility for key activities8. Veto rights9. Banking10. Insurance11. Administrative procedures for invoicing, payment, etc.12. Responsibility for preparing and executing proposals, claims, etc.
  • 34Questions?Jennifer M. MillerWyrick Robbins Yates & Ponton LLP4101 Lake Boone Trail, Suite 300Raleigh, North Carolina(919) 781-4000jmiller@wyrick.comwww.wyrick.com