COOPERATIVE AND TEAMING AGREEMENTS

A recent projection by the National Association of Purchasing Management (NAPM) and the Center for Advanced Purchasing Studies (CAPS) concluded that over the next five years, “as supply bases shrink, supplier alliances will become increasingly important and require purchasing and supply focus.” The acquisition strategy of the government to rely increasingly on an integrated government industrial base requires “the establishment of strategic alliance relationships among buying commands and suppliers to gain insight into, and apply, business sector best practices in such processes as government property, material management and accounting systems, performance-based payments, single-process incentive, and past performance.”

Many commercial businesses view management of their acquisition process as a way to obtain a competitive advantage. Therefore, they manage their supply system strategically. “Strategic management is the design, development, optimization, and management of the internal and external components of the organization’s supply system.” They are accomplishing this by forming strategic alliances with key suppliers, which enables them to establish integrated relationships with the suppliers supporting their core competencies. Establishing cross-functional teams that extend across corporate boundaries results in horizontal integration of functions. These integrated teams are able to participate jointly in forecasting, marketing, design, cost estimation, production planning, inventory planning, purchasing, quality assurance, personnel, and others tasks that are part of an integrated purchasing system.

Integration means that collaborative agreements are needed to enable companies to work cooperatively while maintaining their corporate interests, i.e., they become common stakeholders. It is through these agreements that businesses are able to keep their corporate entity while furthering their goals through agreements to pool or exchange resources. These agreements are fundamentally contracts between two parties and are governed by the Uniform Commercial Code (UCC). They are not contracts to sell good or services; rather, they are more like Memoranda of Understanding, which describe the intent of the partners and include an expectation to enter into more detailed agreements in the future. These cooperative agreements define an area of focus, the value to be gained by each party, how intellectual property will be protected, and exit conditions. The goals of cooperative agreements are to:

• Improve performance in existing markets

• Improve shareholder value

• Achieve an innovation or breakthrough

• Maintain access to key supplier capabilities

• Gain name recognition in new markets.

When a cooperative relationship is developed to perform a government contract, the document outlining the details of the alliance is commonly referred to as a teaming agreement. It is a contract in which: (1) two or more companies form a partnership or joint venture to act as a potential prime contractor, or (2) a potential prime contractor agrees with one or more companies to have them act as subcontractors under a specified government contract or acquisition program. The first type of arrangement is often called a horizontal teaming agreement. The latter, and most common, is described as a vertical teaming agreement.

It is the government’s policy to recognize the integrity and validity of teaming arrangements, provided the relationship is disclosed in an offer, or before the arrangement becomes effective after the offer has been submitted. The teaming agreement must also not violate the antitrust laws nor limit the government’s rights to require consent to subcontract, as well as determine the responsibility of the prime contractor, provide the prime contractor data rights owned by the government, pursue policies of competitive contracting and component breakout, or hold prime contractors fully responsible for contract performance.

To the buyer these teaming arrangements are “desirable” because they enable contractors to “complement” their unique capabilities and to offer the government “the best combination of performance, cost, and delivery.” The contractor views teaming agreements as a way to improve its chances of participating in a government contract while protecting its intellectual property and the proprietary data exchanged during the bidding process. Smaller firms entering into a teaming arrangement often see it as a way to introduce their product by riding the coattails of a larger company.

The subject of teaming agreements will be covered in greater detail in Chapter 5, when we review the subject of proposal preparation.