Federal Teaming Agreements: Prime/Sub vs. Joint Venture Rules
A practical guide to federal teaming structures — what the SBA performance-of-work rules actually require, when to use a JV vs. prime/sub, and how to avoid affiliation problems.
Teaming lets small businesses pursue contracts that are out of reach alone. Getting the SBA performance-of-work rules and affiliation rules wrong creates compliance exposure that can follow you for years.
Step-by-Step Walkthrough
- Identify the capability or size gap you need to fill before reaching out to potential teammates
- Check SAM.gov award data (USASpending.gov) to identify firms already performing this type of work
- Structure as prime/sub for most cases — simpler, faster, no SBA approval required
- Use a joint venture when: required for vehicle eligibility (OASIS+), or for 8(a) mentor-protégé arrangements
- Get any teaming agreement reviewed by a GovCon attorney before signing
- Keep the teaming agreement non-binding until after award to minimize affiliation risk
Performance of Work rule — the threshold most contractors learn too late
FAR 52.219-14 sets minimum self-performance requirements for small business primes on set-aside contracts. Most contractors discover these limits during a compliance review, not before bidding. The rule limits how much work you can pass to subcontractors and still hold the contract legally.
- Services: prime must perform ≥50% of the cost incurred for personnel (labor hours) — this is the one that catches teams off guard
- Supplies (non-manufacturer): prime must perform ≥15% of contract value
- General construction: prime must self-perform ≥15% of total labor cost
- Specialty construction: prime must self-perform ≥25%
Affiliation risk: when teaming works against you
Affiliation becomes a problem when SBA determines that two teaming partners are so economically linked that they should be treated as a single firm for size purposes — which can push your combined size above the small business threshold and disqualify you from the set-aside entirely.
- Dependency trigger: >70% of one firm's revenue coming from the other partner creates a presumption of affiliation
- Control trigger: shared management, officers, directors, or key employees — even informal control arrangements count
- Facilities trigger: shared office space, equipment, or employees (without separate arms-length agreements)
- Binding agreement trigger: a signed teaming agreement that obligates both parties before offer submission — keep agreements non-binding (letter of intent) until after award
- Exclusivity clauses are the most common preventable trigger — avoid language that restricts either party from teaming with others
- Mitigation: separate books, separate payroll, separate facilities, and a GovCon attorney review before signing anything
What to include in a teaming agreement
A well-drafted teaming agreement protects both parties without creating the affiliation problems described above. It should be specific enough to be enforceable but non-binding on the core business relationship until the contract is awarded and the subcontract is executed.
- Scope of work: define each party's work share and the NAICS codes / labor categories they will perform
- Non-binding language: explicitly state the agreement creates no obligation to subcontract; it is a statement of intent only
- Exclusivity limitations: avoid clauses that prohibit teaming with other contractors for the same or similar opportunities
- Intellectual property: who owns deliverables, pre-existing IP, and jointly developed tools
- Non-disclosure: what proposal and pricing information can be shared between parties and what stays compartmentalized
- Termination: what happens if one party is acquired, loses a required certification, or fails to perform during proposal development
- No subcontract guarantee language: include a clause stating neither party is obligated to execute a subcontract unless and until a prime contract is awarded and agreed subcontract terms are finalized
Joint venture vs. prime/sub — when each structure makes sense
Most teaming relationships should default to a prime/sub structure. Joint ventures add legal complexity, SBA approval requirements, and ongoing compliance obligations. Reserve JVs for the specific situations where the vehicle or program explicitly requires or benefits from joint venture status.
- Use prime/sub (default): faster setup, no SBA approval, simpler governance, and clear liability separation between firms
- Use a mentor-protégé JV: when the 8(a) or All Small Mentor-Protégé program is involved — JVs under MP can compete as the protégé's size standard even if the mentor is large
- Use a JV for OASIS+ and similar MACs: some government-wide acquisition vehicles require or score JV structures differently; read the solicitation carefully
- JV compliance: SBA must approve 8(a) JVs; all JV agreements must meet 13 CFR 125.18 (performance of work, ownership, management)
- JV accounting: JVs require separate bank accounts, separate financial statements, and a dedicated project manager from the managing venturer
- JV exit: define dissolution terms — what happens to intellectual property, past performance citations, and shared employees after contract completion
Official Source
Always verify current requirements directly with the government.
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