Joint Venture vs Teaming Agreement: Which Structure Is Right?

Legal Entity Considerations

A joint venture is a separate legal entity — typically structured as a limited liability company (LLC) or general partnership — formed by two or more companies to pursue and perform government contracts. The JV entity must register in SAM.gov, obtain a UEI number, and can hold contracts in its own name. The JV agreement governs the relationship between members: work distribution, management structure, profit sharing, and dissolution terms.

A teaming agreement, by contrast, is a contractual arrangement between a prospective prime contractor and one or more prospective subcontractors. No separate entity is formed. The prime contractor holds the contract and subcontracts work to its teaming partners. The teaming agreement typically covers the parties' obligations during the proposal phase and establishes the framework for the subcontract that will follow award.

The legal distinction matters for liability. In a JV, all members share liability for contract performance. If one member fails to perform, the other member(s) must step in. Under a teaming arrangement, the prime bears full liability to the government. If a subcontractor underperforms, the prime must remedy the situation, and the government holds the prime accountable.

Size Standard Implications

Size standard treatment is one of the most important differences between JVs and teaming agreements. Under SBA rules (13 CFR 121), a JV between two small businesses is generally treated as small for size standard purposes, even if the combined revenues of the members would exceed the size standard. This "exception to affiliation" applies when the JV meets specific SBA requirements, including limitations on the number of contracts the JV can receive and the time period for the JV's existence.

Under the SBA's All Small Mentor-Protege program, a small business protege can form a JV with its large business mentor. This JV is treated as small for purposes of the protege's set-aside programs — even though one member is a large business. This is one of the most powerful tools for small businesses to access larger, more complex contracts by leveraging a mentor's capabilities and past performance.

For teaming agreements, size is simpler: the prime contractor's size determines set-aside eligibility. If the prime is a small business, the contract counts as a small business award. The subcontractors' size is irrelevant for set-aside eligibility, though the prime must comply with limitations on subcontracting (performing a minimum percentage of the work itself).

Past Performance Sharing

Past performance treatment differs significantly between the two structures. Under SBA rules, a JV can cite the past performance of any of its members as the JV's own past performance. This is critical for small businesses that lack the contract history to compete on their own. By forming a JV with an experienced partner, a small business gains access to that partner's past performance record.

Under a teaming arrangement, past performance is more limited. The prime contractor presents its own past performance in the proposal. Subcontractor past performance may be cited as supporting evidence, but it typically carries less weight than prime-level experience. The RFP's Section L instructions determine whether subcontractor past performance is even permissible to include.

After contract performance, a JV earns its own CPARS ratings as the contract holder. These ratings belong to the JV entity, though the JV agreement should address how individual members can reference this experience in future pursuits. Under a teaming arrangement, only the prime receives CPARS ratings. Subcontractors must rely on the prime for past performance references.

When to JV vs When to Team

Form a Joint Venture When:

• Pursuing set-aside contracts where combined size eligibility is an advantage
• You have an SBA-approved mentor-protege relationship and want to leverage the mentor's past performance
• Both parties want equal (or near-equal) control over contract performance
• You plan to pursue multiple contracts together over time
• Past performance gaps need to be addressed through partner sharing

Use a Teaming Agreement When:

• One company has a clear lead role and the other provides complementary capabilities
• The partnership is opportunity-specific rather than long-term
• You want to minimize formation costs and legal complexity
• The prime has sufficient past performance and size eligibility on its own
• You need to assemble a large team with multiple specialist subcontractors

For more details on each structure, see our guides on joint ventures and teaming agreements in government contracting.