Federal Contractors: Team Up for the Benefits While Avoiding the Risks

You’ve come across a great opportunity, but you know your company alone can’t satisfy the customer’s needs. Perhaps you should consider teaming. In this post, we’ll go over why government contractors team, and some of the pitfalls to avoid.

In later articles in this series, we’ll go over how to find potential teammates and how to develop your value proposition so that you are selected as a teaming partner.

Why Do Federal Contractors Team?

No matter their size, federal contractors team for different reasons. Large contractors mostly team since it allows them to be compliant with the small business subcontracting requirements, since 23% of federal contract dollars are set aside for small businesses. Small contractors team to better position themselves for federal opportunities by adding capabilities to their arsenals.

Teaming also helps businesses get past performance for bidding on future opportunities. Past performance is a key factor in winning federal contracts.

Types of Teaming Arrangements

According to the Federal Acquisition Regulation (FAR), there are a couple of types of teaming arrangements. The one that immediately comes to most people’s minds is the Prime/Subcontractor teaming arrangement. Besides that arrangement, you may also enter into a joint venture or Contractor Teaming Arrangement (CTA) for GSA schedule holders, in which two or more companies act as the prime contractor, with one designated lead.

Prime & Subcontractor Teaming Agreements

In this sort of agreement, only the prime on the contract is considered directly contracted to the federal customer. Basically, they have “privity” with the government. The subcontractors sign a Teaming Agreement first, and after award they sign a Subcontracting Agreement.  

They report to the prime on the contract, and often have limited direct contact with the Government Program Manager, Contracting Officer, or Contracting Officer’s Representative (COR).

In most full and open procurements, subcontracting plans to outsource a portion of the work to small businesses are mandatory for a proposal. Contracting officers may include specific subcontracting goals for the prime to help the agency meet their small business objectives. These goals are steep for some agencies that are active in promoting small business participation.

For small businesses, it’s important to research which large prime they should approach based on that prime’s:

  • Capabilities
  • Past performance
  • Existing team
  • Reputation of working with small businesses

Additionally, it may be useful to look for subcontracting opportunities captured at:

Joint Venture Agreements

In the FAR, Subpart 9.6, it defines a joint venture as two or more companies who form a partnership (for each) to act as the prime contractor. This differs distinctly from a prime and subcontractor arrangement since all parties of the joint venture agreement directly engage with the customer.

The past performance of each joint venture partner counts as the prime past performance, and the revenue from the contract is divided between the entities. This way, the whole value of the contract doesn’t cause them to prematurely graduate from the small business program.

If you’re considering a CTA that will similarly help with using everyone’s past performance as a prime, and dividing the revenue, then all parties must have a GSA schedule. It works like a joint venture without the same pitfalls. Your federal customer may encourage a CTA to have contractors build the best solution from their schedule offerings. This gives the government comfort that they are getting the pre-approved and discounted rates without pass-throughs.

Mentor-Protege Programs

Mentor-Protege programs serve as an incubator of sorts, where a large business guides small businesses through business development, and even provides financial and business assistance.

Companies in the SBA’s All Small mentor-protege program may compete together in mentor-protege joint ventures. Aside from the SBA, many agencies have their own mentor-protege programs. If you “google” the phrase “federal contracting mentor protege program”, these are the sort of results you’ll see:

search-results-federal-contracting mentor-protege-program

We can’t go through all of the agency mentor-protege programs here, but this short list may help you get an idea of what they look like:

All of the mentor-protege programs have different requirements. So be sure to thoroughly review  any you’re interested in, and start searching for a suitable mentor with significant experience at that agency.

The most important mentor-protege program of all is the SBA’s All Small Mentor-Protege program. It has significant advantages over all of the other agencies’ mentor-protege programs. However, if you are targeting a specific agency, it is smart to enter into their own mentor-protege program as well.

Avoid These Two Risks of Teaming on Government Contracts

If you aren’t careful, teaming may hurt your company. Particularly if you are a small business with a socioeconomically disadvantaged designation. As a small business, you have to avoid teaming in such a way that the SBA rules your relationship as an affiliation for size purposes or a pass through.

Make sure that you stay up to date on the Limitation on Subcontracting rules, and the associated updates of the FAR and SBA rules.

Pass Through

Pass through work is when a small business is a front for a large business. A small business prime contractor (or a combination of “similarly situated” small businesses) must perform a certain amount of the work on a contract.

A similarly situated company is a subcontractor that has the same socioeconomic or small business designation as the prime contractor. For example, if a prime is an 8(a) does 10% and a sub that’s an 8(a) does 40%, and another large business does 50%, they are fully compliant with the rules.

That 40% that goes to the second 8(a) is not considered subcontracted to them for the purpose of the limits on subcontracting. Only the large business that performs the remaining 50% is.

The percentage amount varies by the nature of the work being performed. For most, the stipulation is that you don’t subcontract out more than 50% of the work the government is paying you for. For general contractors, the prime must perform only 15% of the work; and for trades, it’s 25%.

Affiliation

According to 13 C.F.R. § 121.103, the SBA may determine affiliation if:

“Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.”

13 C.F.R. § 121.103

If companies are deemed affiliated, their size is considered together. If that size is larger than the SBA size standards allow, then the companies can lose their small business designations.

One of the most common ways of becoming “affiliated” is through over-reliance on a subcontractor or teammate. Repeatedly teaming with the same company can have the same result.

Small businesses now have broad exemptions from affiliation, so you don’t have to worry about it as much. It’s different when you form a symbiotic relationship with a large business. In that case, it’s useful to make your harmonious partnership official, and apply for the mentor-protege status, which would make it all above-board.

Need Assistance Finding Teammates and Crafting Your Teammate Value Proposition?

Our federal business development consultants would be happy to explore how we can help you grow your business. Schedule your free 45-minute consultation call here. You can call us at 301-384-3350. You can also learn to do it yourself at our Bid & Proposal Academy courses.

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