This newsletter identifies when “teaming agreements” between contractors are likely to raise antitrust issues, and suggests some practice tips for evaluating or defending those arrangements.
Defense and aerospace contractors often enter into teaming agreements or other collaborative arrangements to jointly pursue contract awards. In most cases, teaming is fully consistent with antitrust law. However, in some circumstances, teaming can raise significant antitrust concerns. This newsletter highlights some of the leading factors contractors should take into consideration when considering teaming agreements.
Just because teaming is commonplace does not mean it is always lawful. Teaming agreements generally involve agreements under which contractors will jointly pursue a procurement and often require the teammate/subcontractor to commit not to bid independently or with another partner. That agreement not to compete may, under certain circumstances, adversely affect competition and can be unlawful. Contractors should avoid a false sense of security based on teaming being a common practice.
Teaming agreements can raise criminal concerns under limited circumstances. In most cases, an agreement not to compete independently but to pursue an award only through the team will be viewed as ancillary to an efficiency-enhancing integration of activities. If the parties legitimately integrate their approach, the teaming agreement will be reviewed under the rule of reason. On the other hand, if there is no real combination of resources, but a simple agreement not to compete or to allocate who will win different bids, the team may be investigated as a criminal violation.
Companies should be able to articulate how the proposed team combines complementary skills that will benefit the customer. It is not sufficient to state this as boilerplate in a whereas clause. The companies may need to explain to law enforcers how the team is complementary, and accurate contemporaneous documents will aid those discussions.
Teaming can be a concern if it combines the two leading bidders for a contract. Understanding what firms are likely to pursue a contract, and which are best situated to win the procurement, is necessary to evaluate whether the combination through a team is likely to reduce or enhance competition. Again, contemporaneous documents assessing the strength of different potential bidders for the contract are very important to this evaluation.
Teaming can be a concern if it locks up a critical component or technology that other bidders require in order to compete effectively. An exclusive teaming agreement, even between companies with highly complementary skill sets, still can raise vertical foreclosure concerns.
Customer views are very important, but they need to be at the right level. Company personnel may report that someone in the customer organization has encouraged the teaming agreement. It is important to consider whether this represents the views of the customer organization or whether it is an offhand comment from a lower level person that would not be supported by the broader organization.
Parties should consider whether to disclose the teaming agreement to the antitrust regulators. There is no mandatory antitrust notification requirement for a teaming agreement. For agreements that are believed to be lawful, but that raise significant antitrust concerns, the parties may elect to approach the U.S. Department of Justice Antitrust Division or the Federal Trade Commission to evaluate the arrangement before implementing it.
Overall, the vast majority of teaming agreements raise no significant competitive issues. However, some teaming agreements do have the potential to significantly affect competition. Companies should evaluate those agreements carefully by conducting an analysis of the remaining competition, the complementary benefits offered by the team and the likely customer views on the arrangement.
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McDermott Will & Emery has a dedicated Aerospace & Defense Group composed of skilled lawyers across the Firm’s practices with demonstrated success advising clients active in this specialized industry. This newsletter is part of a series designed by McDermott to address issues affecting the industry; stay tuned for future publications.