All for One and . . . But Is it Legal?

A recent press release from the U.S. Department of Justice (DOJ) announced that seven companies had agreed to pay approximately $3.1 million to settle Civil False Claims Act allegations relating to bid rigging on U.S. Department of Defense contracts. The press release does not offer many facts and takes pains to note that the claims resolved by the settlements are allegations only and there has been no determination of liability.

Nevertheless, press releases such as this remind government contractors of the importance of understanding the rules by which they form teams to bid. These include:

• Legitimate teaming agreements and subcontracts through which two or more companies—even competitors⁠—cooperate to pursue a contract together are generally permitted. In contrast, agreements by which competitors divide the available bidding opportunities are a no-no. Government contracting officers are obligated to report suspected antitrust violations to DOJ and to the agency office responsible for contractor debarment and suspension.
• Some teaming arrangements can cause a small business to lose its preferred status, either for one procurement or permanently. An example of the former scenario: If a procurement is set aside for small business concerns, the U.S. Small Business Administration (SBA) could find after a protest that the small prime contractor is not independently capable and is unduly reliant on its large business subcontractor, making the teaming arrangement a sham. An example of the latter scenario: A small business that teams repeatedly with the same partner⁠—large or small⁠—could be found to be affiliated with that partner and, therefore, no longer small. Both of these scenarios might be avoided by a mentor-protégé agreement, however.
• Teaming agreements may create organizational conflicts of interest (OCI), where the whole team is excluded because of another contract that one of the team members holds. OCIs can often be mitigated, however, so contractors should not take an automatic "no" for an answer.

For many large procurements, teams may be formed a year of more before the procurement even starts. Being aware of the applicable rules goes a long way towards successful, and legal, teaming arrangements.