Teaming refers to an agreement between two companies to work together in bidding for business, often with a government buyer.
It can be a contract for sub-contracting, or something more primitive like a letter of intent bridging the parties to the signature of an eventual contract should they be successful in bidding.
One company performs the role of prime contractor and there may be one or more subcontractors. The prime contractor may execute some of the work while also acting as the overall project manager, using the subcontractor to extend capacity or capabilities.
On its own, the subcontractor may not be able to win the business but can still participate in the contract and gain experience, while also potentially increasing their capacity or gaining new skills and relationships. Often, buyers require extensive experience that subcontractors, including startups, just don’t have.
It is intended to be mutually beneficial.
It doesn’t always end up that way, depending on the power dynamic between the prime and the sub. For example, imagine a complex project with a large prime contractor whose principal focus is on management of many subcontractors. Complexity here means that there are intricate inter-dependencies between the work of different subcontractors, leading potentially to cascading failure if the orchestra conductor doesn’t do a good job.
Given the length of the bidding process, which in the case of government RFPs can take years, there are important dimensions to the teaming arrangement. Can the prime lock up the subcontractor exclusively, or can the subcontractor work with other primes? Does the contract with the buyer need to mandate terms related to the subcontractor relationship? Does the subcontractor have a seat at the table in negotiating the contract with the buyer? How much can the subcontractor trust the prime with intellectual property and other confidential information? How do the parties propose to allocate risk among themselves? What kind of transparency should the parties provide to the buyer as part of the bidding disclosure?
There are two critical problems that the prime contractor faces in developing a teaming arrangement.
First, prime contractors must find the subcontractors. This is a search problem. Often, primes will work with subcontractors with whom they have worked before. This may cause them not to seek out potential partners with whom they have not worked in the past. Search costs are high because the primes must ensure that they vet the subcontractors for risk.
Second, primes and subs need to collaborate. This means collaborating on winning the RFP, or the task order in the case of an Indefinite Delivery, Indefinite Quantity contract, including coordinating resource availability. This is complicated further when buyers don’t communicate well themselves. Problems cascade.
Another way to think of teaming is that as a response to category management.
Category management refers to the way in which some large buyers will consolidate internally their purchases of items, or will work with other buyers, to purchase in scale, thereby obtaining price economies for themselves. It is used commonly for indirect spending. We have written elsewhere how category management leads buyers to purchase from large sellers. It is fundamentally difficult for smaller sellers who lack the scale or the scope of large sellers to compete. This discriminates especially against businesses owned by women, minorities, and members of other disadvantaged groups.
Teaming, especially when it involves smaller suppliers teaming with one another, effectively acting as their own prime contractors, enables these firms to form large enough cooperatives to compete with large suppliers.
Category management with its consolidation of buyer activity within and across purchasing organizations feeds income and wealth inequality. Here is Professor Nathan Wilmers from the MIT Sloan School of Management:
“… I found that, over time, as a company becomes more reliant on sales to big buyers, its wages and labor costs tend to decline. I also looked at what happens when big buyers merged together. I found that when big buyers consolidate, wages at their manufacturing and logistics suppliers go down. And this phenomenon — the increasing power of large buyers — explains around 10% of wage stagnation since the late seventies.”
EdgeworthBox enables teaming, in all its applications, by solving both the search problem and the collaboration problem. Our platform, borrowing features from financial markets in an interface we deem to be like a “Bloomberg machine for procurement,” enables much easier search for and vetting of suppliers while also facilitating communications with our contemporary messaging platform. Prime contractors can act as buyers on the platform, demonstrating to their ultimate clients a similarly disciplined process for soliciting subcontractors to the one the buyers use to decide upon prime contractors. We call it “network-based sourcing™.” Drop us a line. We would love to talk to you more about your individual situation and how we can help you.