In light of the State of Maryland’s decision to allow MBE/WBE participation in the form of joint ventures and teaming agreements for gaming industry projects such as video lottery terminals and casino construction and operation, small business owners have begun to inquire about the difference between joint ventures and teaming agreements. A joint venture is an association of two or more entities to carry out a single business enterprise for profit and for mutual benefit with the understanding that each is to share in the joint venture’s profits and losses and have a voice in its management.
This allows the entities to share strengths, minimize risks, and increase competitive advantages in the marketplace. A teaming agreement involves two or more companies that come together and combine resources generally to bid on a specific government project. The teaming agreement typically involves a larger company and one or smaller companies. Each company in a teaming agreement has specific set of responsibilities relating to the bidding process, with the larger company generally serving as the prime contractor and the smaller companies serving as subcontractors. Generally, when business entities form a joint venture, the venture is considered a separate business entity. Unlike joint ventures, however, individual companies electing to enter into teaming agreements maintain their autonomy and are generally viewed as separate business entities. Companies who decide to enter into a teaming agreement must take great care when structuring the agreement to draft it in a way that the companies do not appear to be affiliated – i.e., one single business entity for size determination purposes. If companies who enter into a teaming agreement are viewed as affiliated, this could affect smaller companies’ ability to meet size standards and qualify as a small business. When properly constructed, a joint venture or teaming agreement is a viable tool for small businesses to develop and maintain business relationships and opportunities. However, a small business should keep in mind that if it elects to enter into a joint venture or create a teaming agreement, the joint venture or teaming agreement should be crafted in a way that affords it responsibility for a clearly defined portion of work to be performed on a given project as well as the opportunity to share in management responsibilities and exercise independent judgment.