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Wyoming Business Tips for Nov. 27-Dec. 3


November 21, 2011 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.

By Jeffrey W. Sneddon, Wyoming Procurement Technical Assistance Center procurement specialist

"Is Teaming with a Strong Subcontractor a Guaranteed Contract Winner?" Julie, Gillette

Teaming arrangements can enable companies to win contract awards for which they may not be qualified for by "standing alone."

Using a teaming arrangement by including a member who can bring a high level of experience, technical capability and past performance, the team can score high on the evaluated criteria of the proposal and win the award.  

The Federal Acquisition Regulations (FAR) describe contractor team arrangements as an arrangement in which two or more companies form a partnership or joint venture to act as a potential prime contractor; or a potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified government contract or acquisition program.

There also are a number of benefits for the government to deal with firms involved in teaming arrangements, including a single point of contact, reduced program management, increased completion and opportunities for small businesses, increased innovation and support of small business development.

A partnership is a business enterprise consisting of two or more individuals or concerns who come together to co-own a trade or business for profit. The partners share ownership of a single business.  The partnership, and the members of the partnership, is in privity of contract with the government.

A joint venture is an association of two or more individuals or concerns formed to undertake a particular business transaction or project, rather than one intended to continue indefinitely. The members of the joint venture share in the profits and risk of loss. The joint venture entity, and its members, is in privity of contract with the government.

A subcontractor is any supplier, distributor, vendor or firm that furnishes supplies or services to or for a prime contractor or another subcontractor.

Privity refers to the direct relationship between the parties to a contract. Thus, there is privity between the government and the business (prime contractor) with whom the government has directly awarded the contract. Because the teaming arrangements of partnerships or joint ventures results in a legal entity which can directly be awarded a contract there is privity. There is no privity between the government and a prime contractor's supplier or subcontractor.

This means that the prime contractor can, and must, have access to the government. If the prime contractor or any member of a partnership or joint venture acting as a prime contractor fails to adhere to the terms and conditions of the contract, the prime contractor will be held responsible. It is the ability of the prime contractor to perform which is paramount in the successful completion of a contract.

Lacking privity (no contractual obligation, and no ability to deal directly with the subcontractor), the government can still base an acceptable level of contract performance risk on a teaming arrangement in the form of a prime contractor and subcontractor relationship. This is accomplished because, unless stated otherwise in the request for proposal, subcontractors are normally evaluated in the source selection elements.

FAR does state the source selection evaluation should take into account past performance information regarding predecessor companies, key personnel who have relevant experience or subcontractors that will perform major or critical aspects of the requirement when such information is relevant to the instant acquisition.

A prospective contractor must affirmatively demonstrate its responsibility, including, when necessary, the responsibility of its proposed subcontractors. The courts also have held that agencies may consider subcontractor past performance information unless it is prohibited by the RFP.

Does this take all the responsibility away from performance by the prime contractor? Can the prime "team-up" with some strong subcontractors and then set back and let the money flow in? Is this license for a pass through or front? Absolutely not. The procurement process should not allow that to happen.

A well developed Request for Proposal (RFP) will speak to the requirements of the prime contractor and the evaluation specific to any subcontractors.

The lesson to be learned by small firms using subcontractors is to have prior performance, past experience and technical capability. Strong subcontractors can be a valuable teaming partner, and in most cases, such as construction, subcontractors are a must. But because of privity, and because you sign the award document, you are responsible. Do not go after an award on the coattails of another firm.

A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.

The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email wsbdc@uwyo.edu or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.

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