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Exclusive Teaming Agreements and 52.203-6

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Teaming agreements (between a proposed prime and subcontractor) often include exclusivity language such as the following:

Since this Agreement requires the full cooperation of the Parties, both Parties agree that they will not in any manner participate in or undertake efforts that are competitive to this Agreement, nor will they compete for the Procurement or respond to the Solicitation, independently or in conjunction with any other Party, during the term of this Agreement.

52.203-6(a) prohibits contractors from entering into any agreement with an actual or prospective subcontractor "which has or may have the effect of restricting sales by such subcontractors directly to the Government of any item or process (including computer software) made or furnished by the subcontractor under this contract or under any follow-on production contract." 52.203-6( b ) then states that this prohibition "does not preclude the Contractor from asserting rights that are otherwise authorized by law or regulation".

I guess I have two questions, which may be related. First, why aren't teaming agreements containing the above language prohibited by 52.203-6(a)? (Or are they?)

Second, what is the intent of 52.203-6( b )? Is this a convoluted way of saying that 52.203-6(a) doesn't apply as long as the agreement is otherwise legal, or is this referring to some other unnamed rights of the contractor?

(Okay, maybe I really had four questions...)

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Here's one theory. FAR 52.203-6 is a contract clause. It doesn't take effect until the prime contract is awarded. And, it only prohibits the prime's restricting sales by the subcontractor of items furnished "by the subcontrator under this contract or under a follow-on production contract." So, it requires that the prospective subcontract actually receive a subcontract.

A teaming agreement is entered into as part of competing for the contract in the first place and typically has language saying that it expires upon award of the prime contract or a subcontract thereunder. Thus, the provision in FAR 52.203-6 saying you can't limit subcontrator sales doesn't take effect until after the prime gets the contract and the subcontractor gets the subcontract, at which time the teaming agreement typically expires and any limitations in it also expire.

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So I've heard about a new opportunity coming up in the next year and I'm putting my team together. At this point there's no RFP, draft or otherwise, so there are no FAR clauses to reference. Plus although I'm anticipating doing business with the Government, the Teaming Agreement is purely an agreement between two commercial entities that must conform to the laws of the applicable state(s).

FAR 1.104 Applicability.

The FAR applies to all acquisitions as defined in Part 2 of the FAR, except where expressly excluded.

From FAR Part 2

?Acquisition? means the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract.

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Teaming agreements are generally okay. See FAR Subpart 9.6. As outsidelegalguy pointed out, the contract clause does not apply to pre-award teaming agreements. However, there are antitrust considerations which make legal advice essential when a firm considers entering into a teaming agreement.

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Here's one theory. FAR 52.203-6 is a contract clause. It doesn't take effect until the prime contract is awarded. And, it only prohibits the prime's restricting sales by the subcontractor of items furnished "by the subcontrator under this contract or under a follow-on production contract." So, it requires that the prospective subcontract actually receive a subcontract.

A teaming agreement is entered into as part of competing for the contract in the first place and typically has language saying that it expires upon award of the prime contract or a subcontract thereunder. Thus, the provision in FAR 52.203-6 saying you can't limit subcontrator sales doesn't take effect until after the prime gets the contract and the subcontractor gets the subcontract, at which time the teaming agreement typically expires and any limitations in it also expire.

Good point, and I had considered this, but in many cases the proposed prime contractor already has other contracts in place, often with the same proposed subcontractor providing the same type of subcontracted products/services. So this FAR clause would be in effect under those other contracts. Wouldn't that then prohibit the prime from entering into a teaming agreement with the sub on a new RFP for similar work? It doesn't make sense that teaming agreements would be so restricted, since as Vern pointed out they are acknowledged as being acceptable under FAR Subpart 9.6, but the language of this clause perplexes me. Is it only meant to prohibit contractors from restricting subcontractors from bidding as a prime on the recompete of that exact contract? Or are teaming agreements an exception under 52.203-6( b )? There seems to be general agreement that this is okay, but my OCD makes me want to know why it is okay. :)

Should've quit while I was ahead

Trouble waiting to happen

Vern - agree that there are antitrust considerations as well. That's a whole different set of issues...

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Here's another approach:

Take another look at the language you quote from the teaming agreement -- "both Parties agree that they will not in any manner participate in or undertake efforts that are competitive to this Agreement, nor will they compete for the Procurement or respond to the Solicitation, independently or in conjunction with any other Party, during the term of this Agreement" -- which is fairly typical. It says the sub won't compete on or respond to the solicitation. It doesn't say the sub can't sell its items directly to the government.

The prime contract presumably is for an item (e.g., a system of some sort) for which the subcontractor's contribution is just one or more of the components. The sub couldn't offer just that component/those components to the government in response to the RFP. It wouldn't be technically acceptable.

So, the teaming agreement binds the sub to the prime for purposes of a competiton in which the sub couldn't compete independently and couldn't offer its products independently. I don't see any conflict with 52.203-6.

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MrsBad - you said "but in many cases the proposed prime contractor already has other contracts in place, often with the same proposed subcontractor providing the same type of subcontracted products/services. So this FAR clause would be in effect under those other contracts".

Agree but those other contracts have nothing to do with the new RFP or each other. Clauses in a contract pertain only to that contract. I'm assuming you aren't talking about orders under an ID/IQ because if the sub is on the ID/IQ team, there'd be no reason for a teaming agreement for the new order since the ID/IQ subcontract terms would apply

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However, there are antitrust considerations which make legal advice essential when a firm considers entering into a teaming agreement.

Two thumbs up! Our legal team won't even consider a teaming agreement if there is an exclusivity clause buried in it. I've only seen one or two in our entire corporation that have been able to get legal to even *consider* the request with mucho, mucho, mucho rationale and dire circumstances.

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Here's another approach:

Take another look at the language you quote from the teaming agreement -- "both Parties agree that they will not in any manner participate in or undertake efforts that are competitive to this Agreement, nor will they compete for the Procurement or respond to the Solicitation, independently or in conjunction with any other Party, during the term of this Agreement" -- which is fairly typical. It says the sub won't compete on or respond to the solicitation. It doesn't say the sub can't sell its items directly to the government.

The prime contract presumably is for an item (e.g., a system of some sort) for which the subcontractor's contribution is just one or more of the components. The sub couldn't offer just that component/those components to the government in response to the RFP. It wouldn't be technically acceptable.

So, the teaming agreement binds the sub to the prime for purposes of a competiton in which the sub couldn't compete independently and couldn't offer its products independently. I don't see any conflict with 52.203-6.

Another good point that addresses many/most teaming agreements. However, (for a variety of reasons) my company frequently participates as a subcontractor on solicitations for which it would be technically capable of satisfying the entire requirement. Sometimes (if there is no exclusive teaming agreement in place) we even submit proposals as both a prime and a subcontractor. We occasionally also submit proposals as the prime with a subcontractor who would technically be capable of responding to the entire RFP. I'm sure our situation is not completely unique. The teaming agreement language I quoted did prohibit the sub from responding "independently or in conjunction with any other Party" to the solicitation.

MrsBad - you said "but in many cases the proposed prime contractor already has other contracts in place, often with the same proposed subcontractor providing the same type of subcontracted products/services. So this FAR clause would be in effect under those other contracts".

Agree but those other contracts have nothing to do with the new RFP or each other. Clauses in a contract pertain only to that contract. I'm assuming you aren't talking about orders under an ID/IQ because if the sub is on the ID/IQ team, there'd be no reason for a teaming agreement for the new order since the ID/IQ subcontract terms would apply

No, I'm not talking about orders under an ID/IQ.

I'm not sure I see your logic. The clause has to apply to restricting a subcontractor's sales to the government on other contracts; the subcontractor couldn't sell directly to the government under the contract held by the prime...

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Mrs Bad - I think we can agree that we don't understand each other's logic. You want to apply a clause in one contract to other unrelated contracts. I say that as long as the future RFP is not an order under an existing vehicle, then there is no relation between the future RFP and the pre-existing contract and therefore the clauses in the contract don't apply. The FAR applies to the Government, not to vendors, unless and until the pertinent language in incorporated into a contract that the vendor has accepted.

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Mrs Bad - I think we can agree that we don't understand each other's logic. You want to apply a clause in one contract to other unrelated contracts. I say that as long as the future RFP is not an order under an existing vehicle, then there is no relation between the future RFP and the pre-existing contract and therefore the clauses in the contract don't apply. The FAR applies to the Government, not to vendors, unless and until the pertinent language in incorporated into a contract that the vendor has accepted.

We may have to agree to disagree. While I agree that FAR clauses only apply once they are incorporated into executed contracts, I disagree that FAR clauses never apply to a contractor's conduct outside the performance of that contract. For example, under 52.222-50 Combating Trafficking in Persons, a contractor is prohibited from engaging "in severe forms of trafficking in persons during the period of performance of the contract". Note, the restriction is not solely in the performance of the contract itself, but during the period of performance of the contract. I believe 52.203-6, once incorporated into a contract, also applies to a contractor's actions outside the performance of the contract. After all, if this clause only applied to potential direct sales by the subcontractor to the government under that particular contract, when would it ever apply? A subcontractor cannot sell directly to the government under a different party's (the prime's) contract.

However, you may be onto something. Perhaps the intent of this clause is only to prohibit the prime from placing such restrictions on a sub as a condition of subcontracting work to that sub under the applicable contract. If that is the case, then an exclusive teaming agreement for a new contract would be acceptable as long as it wasn't a precondition of awarding the subcontractor work under the preexisting contract...

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... Sometimes (if there is no exclusive teaming agreement in place) we even submit proposals as both a prime and a subcontractor.

Yikes! Hope you keep your proposal teams and tech guys firewalled away from each other for the individual proposal responses. If I were the prime, I'd be concerned you know my inside info and turn around and make your proposal better...

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Two thumbs up! Our legal team won't even consider a teaming agreement if there is an exclusivity clause buried in it. I've only seen one or two in our entire corporation that have been able to get legal to even *consider* the request with mucho, mucho, mucho rationale and dire circumstances.

Yikes! Hope you keep your proposal teams and tech guys firewalled away from each other for the individual proposal responses. If I were the prime, I'd be concerned you know my inside info and turn around and make your proposal better...

Hmm. Maybe it's just me, but I consider these to be curiously conflicting perspectives...

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Hmm. Maybe it's just me, but I consider these to be curiously conflicting perspectives...

Are we talking about exclusivity or confidentiality? I don't think the two conflict as they are different approaches.

In more explanation towards the second comment, we don't turn around and do double proposals. We are either prime or sub. The comment is geared more from an OCI perspective of having access to unfair information and to confidentiality rather than exclusivity. I'd argue that in most cases where people enter the exclusivity junk in the T.A., it really should be chopped out as the intent is on confidentiality and ensuring a proper non-disclosure agreement is in place before getting to teaming.

The exclusivity comment is more from the side of anti-trust implications and how our legal team interprets the rules and regulations and avoid any perceivement of trying to bid rig, build a monopoly, or lose out on opportunities in the future because you are locked into this exclusivity arrangement.

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