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Key Agreements Used by Successful Prime Contractors and Subcontractors Doing Business With Federal, State, and Local Governments

KEY AGREEMENTS USED BY SUCCESSFUL PRIME CONTRACTORS AND SUBCONTRACTORS DOING BUSINESS WITH FEDERAL, STATE, AND LOCAL GOVERNMENTS

Seminar presented by KENNETH BRODY

TABLE OF CONTENTS

A. TEAMING AGREEMENT

B. SUBCONTRACT AGREEMENTS

C. CONDITIONS OF EMPLOYMENT

D. NONDISCLOSURE/PROPRIETARY INFORMATION AGREEMENT

KEY AGREEMENTS USED BY SUCCESSFUL PRIME CONTRACTORS AND SUBCONTRACTORS

The following types of agreements are commonly used by most successful government contracting firms and are presented here in the chronological order in which they will usually appear in the business context [Teaming Agreements, Subcontracts, conditions of employment, and Non-Disclosure/Proprietary Information Agreements]. The following comments are representative of cases or issues which the presenter has encountered in serving his client base. Each representative agreement should in all cases be reviewed and tailored to suit the immediate situation but most will include, as a minimum, the terms or conditions described below.

A. TEAMING AGREEMENT

TIP: The value of a teaming agreement is often overlooked by small business. There is a tendency to accept the agreement offered by the prospective prime contractor as merely a formalized statement of agreement to hold hands and go forth together to try to win something. This can be a mistake for several different reasons. The teaming agreement should be viewed by you as your first opportunity to define the subsequent prime-subcontractor relationship--in other words; it is the first opportunity you have to formally commence negotiations because much of what appears in the teaming agreement will appear in the subsequent subcontract. The bigger, more sophisticated companies understand this and for this reason alone the smaller and emerging companies need to look more critically at these agreements.

1. Teaming agreement v. Non-Disclosure agreement

2. Prospective Prime v. Prospective Sub-Contractor

a. Bargaining strength often change as relationship evolves

3. Look for:

a. Exclusivity--Big Primes will want to keep their options open but at the same time bind Subs to their proposal team v. small Subs who will want exclusive commitment.

b. Term--Primes will not want to commit to the term of a subsequent subcontract v. Subs who will want to ensure that any subsequent subcontract will be for the base period and all options.

c. Work Content--Primes will want to be flexible and will talk in terms of "targets" and "goals", whereas Subs will want a specific commitment relating to exclusive work segment or fixed % of work.

d. Cost Proposal and Prime/GOV Negotiations--Primes will want to require Subs to make cost/price concessions at BAFO--problem is that Subs have no part and therefore no input into negotiations.

4. Standard Terms of Teaming Agreement

a. Allocation of Proposal Preparation Responsibility

b. Scope of Anticipated Work

c. Submission of Proposal Materials

d. Responsibility for Response to Proposal questions and clarifications and for Contract Negotiation

e. Exclusivity

f. Contract Award and Subcontract Negotiations

g. Non-Disclosure (supersedes Non-Disclosure/Proprietary Information Agreement)

h. Term and Termination of Teaming Agreement

i. Warranties and Limitation on Remedies

5. Unlike the Non-Disclosure/Proprietary Information Agreement, the Teaming Agreement is not bi-lateral. Different agreements for different clients. Be careful to read closely.

6. Your relative bargaining strength might be greater at this initial state than it will after contract award or vice versa--your best business judgment will tell you when to push and when to concede.

B. SUBCONTRACT AGREEMENTS

TIP: See discussion of Teaming Agreements--if you observed the foregoing in negotiating your teaming agreement, the subsequent subcontract will be easily negotiated because most of the critical terms have already been addressed--presumably at a time more favorable to you than post contract award.

1. Type of subcontract is negotiable. Although the prime contract might be a Fixed Price or Time and Materials type of contract, the subcontract can be cost reimbursable or some other type.

2. Subcontract will supersede the Teaming Agreement, so be sure that all of the important terms of the Teaming Agreement are included in the Subcontract, including scope of work, period of performance and level of effort.

3. Compensation or Consideration will have been addressed in your cost proposal but should be spelled out in the subcontract to avoid confusion.

4. Invoicing and Payment

5. Project Management and Personnel Supervision

6. Dispute Resolution

a. Prime - Subcontractor Disputes

b. Sub - Government Customer Disputes

7. Responsibility for Gov. Shut-Downs, Inclement Weather

8. Work or Product Acceptance (Error Correction)

9. Rights in Work Products, Data Rights, Etc.

10. Responsibility for Performance Delays

11. Term, Termination, Stop Work

12. Interference with Employees/Non-Compete

13. FAR Flow Down Clauses

14. Statement of Work & Task or Delivery Orders

a. Be careful that new and materially different terms imposing additional obligations and restrictions on your company do not creep into the negotiated subcontract through task and delivery orders.

C. CONDITIONS OF EMPLOYMENT

TIP: It is recommended that you consider using some form of this agreement with every employee. Many younger employees (and a surprising number of older, experienced employees) do not understand that the law will recognize the existence of certain basic duties and obligations of an employee to his or her employer. Moreover, an executed document describing the conditions of employment gives the to the employer a stronger basis for enforcement in the event of a gross violation.

1. Duty to Avoid Conflict of Interest--limits unauthorized outside employment which conflicts with or helps a competitor.

2. Ownership of Employee Developments--explains that the employer owns all patents, trade secrets, copyrights, inventions or other intellectual property rights developed, authored or created by employee during the course of performing work for employer = "work made for hire rule".

3. Confidentiality--describes the employee's duty to hold in confidence and the duty to not disclose proprietary information--should also survive employment termination by one - two years. Proprietary information, in this context, should be defined to include your contractual relationships, customer lists and marketing leads.

4. Return of Materials--describes the employee's duty to immediately return all property, including data upon termination.

5. Restrictions on Competition--an employer might want to consider including this clause for senior managers or other key employees who will be given access to the employer's most sensitive proprietary information and who could do immeasurable harm if they were to leave and join a competitor. Restriction will have to be reasonable regarding geographic area of the restriction and term.

6. Noninterference with Employees--describes employee's duty and agreement to not recruit, hire or assist other in the recruitment or hiring of your employees during employment and for period of 1 year thereafter.

7. In all cases reiterate that this is a description of the conditions and duties of employment and is not an employment agreement--employment remains at will.

D. NONDISCLOSURE/PROPRIETARY INFORMATION AGREEMENT

TIP: It is recommended that you use a form of this agreement when engaging other companies and business entities in preliminary discussions about joint pursuit of common business interests. It is a good idea for your marketing/business development staff to have an executed copy of the agreement before they enter initial discussions with potential teaming partners and before they share proprietary marketing information or other protected information about your company and its marketing and business interests.

The provisions of this agreement should include at a minimum:

1. Agreement between the parties to hold confidential and to not disclose the proprietary information of the other.

2. A definition of proprietary information which should be relatively broad to protect yourselves but if you have specific information which is of unique value, include specific reference thereto.

3. Term should be for a period sufficient to allow you to explore the teaming possibilities. Obligations should extend for an additional period sufficient to protect your legitimate business interest (1-2 years).

4. Agreement on how the information is to be disposed of upon termination of the agreement.

5. Agreement should be bi-lateral and equally binding on both parties. If one-sided, look out -- might indicate problems in negotiating a fair teaming and subcontract agreement.

CAUTION: DO NOT USE OR ACCEPT THE SAME AGREEMENT REPETITIVELY WITHOUT EXAMINING IT'S TERMS AND CONDITIONS CLOSELY TO ENSURE THAT IT ADEQUATELY AND CORRECTLY STATES YOUR UNDERSTANDING OF THE AGREEMENT BETWEEN THE PARTIES. A LEGAL REVIEW IS ALWAYS RECOMMENDED.

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