Legal Issues in Teaming Arrangements

In recent years, there has been a trend toward large design-build projects, and even very large public-private partnership (“P3”) projects in public construction. With this trend, an emphasis has emerged in the construction industry on “teaming arrangements” among all parties in the construction industry - contractors, subcontractors, designers, and material suppliers. However, forming successful teams can be a complex process because there are many different formats and legal organizations that can be used, and some complex legal and business issues that should be addressed.
This is the first in a series of five articles to touch on the most common issues that should be considered when evaluating the formation of a teaming arrangement for construction and design-build projects.

Format of the “Team”. Generally, “teaming arrangements” fall into two formats:

1. Subcontract arrangement. In this format, one of the team members is the actual “subcontractor” with the Owner, General Contractor or Design-Builder but there is an express agreement that a defined portion of the work will be subcontracted to the other team member(s). The Teaming Agreement specifies the critical terms of that subcontract. This format is preferable, for example, if one team member is not currently prequalified for the work or lacks the experience or resources to manage the subcontract.
2. Joint Venture. As discussed in future installments, a “joint venture” may be a separate entity from the team members. The essential elements are joint management, joint ownership, joint operation, and sharing of profits and losses. This format is more complicated to set up, but treats the team members more as equals. Joint Ventures can assume several formats including: corporations, limited liability companies, partnerships, and “unincorporated joint ventures.” Each of these formats has certain distinct advantages and disadvantages which we will discuss in future installments. However, the most common forms for ‘joint ventures’ today are limited liability companies and unincorporated joint ventures, due to their simplicity and tax efficiency.

To be continued…

Authored by attorney Pat Genzler, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice.
For more information, contact Mike at 757-446-8626 or Bill Franczek at 757-446-8600.
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