Teaming Agreements and the Ostensible Subcontractor Rule: SBA OHA Decision Provides Some Guidance

Teaming agreements for small business set-aside contracts can be tricky.  On the one hand, unlike 8(a) and SDVOSB joint venture agreements, there are no mandatory provisions.  On the other, if a competitor files an SBA size protest challenging the award, the teaming agreement may be “Exhibit A” in the SBA’s evaluation of whether the team violated the ostensible subcontractor rule.  In other words, mess up the teaming agreement, and you could have a big problem on your hands.

The SBA has never published a road map to a perfect teaming agreement, but a recent SBA OHA decision–which found no ostensible subcontractor rule violation–highlights a few provisions that prime contractors and their subcontractors would be wise to consider including.

SBA OHA’s decision in Size Appeal of CymSTAR Services, LLC, SBA No. SIZ-5329 (2012), involved an Air Force small business set-aside solicitation.  The Air Force identified ProActive Technologies, LLC, as the apparent successful offeror.  A competitor, CymSTAR, filed a SBA size protest, alleging that ProActive was affiliated with its subcontractor, Boeing, under the ostensible subcontractor rule.  The SBA Area Office disagreed with CymSTAR and held that ProActive was an eligible small business.

On appeal, SBA OHA examined the teaming agreement between ProActive and Boeing.  SBA OHA suggested that the following features helped prevent the teaming agreement from running afoul of the ostensible subcontractor rule:

1.  Proposal Preparation.   The ProActive-Boeing teaming agreement called for ProActive to play the lead role in proposal preparation.  In this way, the teaming agreement helped the parties avoid any suggestion that Boeing had led the proposal effort (which would have been a risk factor for ostensible subcontractor affiliation).

2.  Interactions with the Government.   The teaming agreement stated that ProActive would be the team’s sole interface with the government.  It was wise to include such a statement, because, in the SBA’s eyes, negotiating and interacting with the government should be the function of a prime contractor, not a subcontractor.  If both parties will interact with the government, it smells like a joint venture, not a prime/subcontractor team.

3.  Division of Work.  The teaming agreement provided that ProActive would perform no less than 51% of the work and that Boeing work perform no more than 49%.  Including this provision helped reassure the SBA that the team would comply with the FAR’s limitations on subcontracting and that ProActive would, in fact, perform more of the work than its subcontractor.

4.  Cross-Hiring.  The teaming agreement stated that neither party would hire the other’s employees.  This was an important provision because it told the SBA that ProActive would not meet its performance obligations by hiring Boeing’s employees–a risk factor under the ostensible subcontractor rule.

SBA OHA considered a number of other issues in the CymSTAR Services size appeal, ultimately agreeing with the SBA Area Office that ProActive and Boeing had not violated the ostensible subcontractor rule.  In part, the successful outcome was due to some smart provisions the parties inserted in their teaming agreement.

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