Why Teaming Matters for Small Contractors
In FY2024, federal agencies awarded $183.5 billion in prime contracts to small businesses, representing 28.76% of all eligible federal contracting dollars, well above the statutory 23% goal. Twenty-one of 24 CFO Act agencies received an “A” or “A+” on their SBA procurement scorecards, and DoD specifically increased small business awards by $4.9 billion year over year.
Those headline numbers suggest a healthy market. But behind the aggregates, the competitive dynamics create a structural challenge: the largest contract vehicles require capabilities, past performance, and clearance levels that no single small business possesses.
Teaming is how small businesses solve this problem. By combining complementary capabilities, small contractors can pursue opportunities they could never win alone and build the past performance record needed for larger awards. But teaming arrangements are not simple handshake deals. They carry real legal risks, SBA compliance requirements, and strategic pitfalls that can undermine the very advantages they are designed to create.
The Legal Framework: FAR 9.6 and What It Actually Says
The Federal Acquisition Regulation addresses teaming in Subpart 9.6, which is notably brief for a regulatory framework governing billions of dollars in contractual relationships. FAR 9.601 defines a “contractor team arrangement” as either two or more companies forming a partnership or joint venture to act as a potential prime contractor, or a potential prime agreeing with one or more companies to have them act as subcontractors under a specified government contract.
FAR 9.603 states that the government will “recognize the integrity and validity of contractor team arrangements,” provided the arrangements are identified and company relationships are fully disclosed in an offer. But FAR 9.604 makes clear that nothing in the subpart authorizes arrangements that violate antitrust law, and the government retains the right to hold the prime contractor fully responsible for contract performance regardless of any teaming arrangement.
In practice, this means the government treats teaming as a private business matter between the teaming partners. The government’s contractual relationship is with the prime contractor. Subcontractors and teaming partners have no privity of contract with the government, no direct claim to payment from the government, and no standing to protest a prime contractor’s failure to honor a teaming agreement.
It is worth noting that the regulatory landscape is shifting. Under the FAR Overhaul initiated by Executive Order 14275 in April 2025, FAR Subpart 9.6 is being moved to the FAR Companion Guide as non-regulatory guidance. The practical implications of this reclassification are still unfolding, but it signals that the government views teaming arrangements as commercial business decisions rather than matters requiring detailed regulatory prescription.
Teaming Agreements vs. Subcontracts vs. Joint Ventures
The terminology in defense contracting teaming is precise, and the distinctions carry significant legal and regulatory consequences.
A teaming agreement is a pre-award arrangement that binds two or more companies to pursue a specific procurement together, typically with one designated as the prime contractor and the others as proposed subcontractors. The teaming agreement governs the pursuit phase: who leads the proposal, how work will be divided, what proprietary information can be shared, and (critically) what happens if the team wins the contract.
A subcontract is the definitive post-award instrument. Once the prime contractor wins the award, the teaming agreement’s value depends entirely on whether it creates a binding obligation to issue a subcontract to the teaming partner. Only the prime contractor has privity of contract with the government. The subcontractor’s rights flow exclusively from the subcontract, not from the teaming agreement and not from the prime contract.
A joint venture is a separate legal entity created by two or more companies to pursue and perform government contracts together. Joint ventures share management, profits, and risk. Under SBA regulations, mentor-protege joint ventures receive special treatment, including the ability to pursue set-aside contracts where the protege qualifies for the relevant small business designation.
The distinction matters because courts have repeatedly found teaming agreements to be unenforceable. The landmark case is Cyberlock Consulting v. Information Experts (939 F. Supp. 2d 572, E.D. Va. 2013), in which the court held that a teaming agreement containing language about “good faith negotiation” of a future subcontract was an unenforceable “agreement to agree.” Under Virginia law, where many defense contractors are headquartered, a teaming agreement must contain an unqualified obligation to award and accept a subcontract, with specific scope, workshare percentages, and defined pricing methodology to be enforceable.
This is not an academic distinction. Companies that invest months of effort and hundreds of thousands of dollars in proposal costs based on a teaming agreement that turns out to be unenforceable have limited legal recourse. The prime contractor can win the award, renegotiate the subcontract terms, reduce the workshare, or replace the teaming partner entirely.
The Mentor-Protege Advantage
The SBA’s All Small Mentor-Protege Program and the DoD Mentor-Protege Program create structured teaming relationships with significant competitive advantages.
The SBA program currently has approximately 1,565 active mentor-protege agreements. Under the program, a mentor (which can be any size firm) and its protege can form a joint venture for any small business contract, provided the protege individually qualifies as small for the relevant NAICS code. The joint venture is treated as a small business for size determination purposes, even though one of its members may be a large firm. The protege must perform at least 40% of the work done by the joint venture.
The DoD Mentor-Protege Program is the oldest continuously operating federal mentor-protege program, established in November 1990. Section 856 of the NDAA for FY2023 made the program permanent. Over the past five years, the program has helped more than 190 small businesses become part of the military supply chain.
A January 2025 SBA final rule clarified how agencies should evaluate the past performance and experience of proteges in joint ventures, addressing one of the most significant competitive barriers small businesses face. Under the updated regulations, agencies must give appropriate credit to the protege’s performance and the mentor’s relevant experience when evaluating a mentor-protege joint venture proposal.
However, the regulatory environment is not entirely stable. The SBA is considering potentially eliminating the affiliation exception between an approved mentor and its protege for Multiple Award Contracts, or limiting the exclusion to contracts or orders that do not exceed five years. If finalized, this change would significantly restrict the use of mentor-protege joint ventures on the IDIQ and MAC vehicles that account for a growing share of federal procurement.
Size Standards, Affiliation, and Recertification
SBA size standards determine which companies qualify as “small” for purposes of set-aside contracts, and the rules governing size determination in teaming arrangements are complex.
In August 2025, the SBA proposed increasing size standards across 263 industries. If finalized, approximately 11,200 additional businesses would newly qualify as small. The SBA also proposed retaining 237 size standards that could have been reduced, citing ongoing economic impacts and its general policy of not lowering standards unless necessary to exclude dominant firms from small business programs.
The affiliation rules are where teaming arrangements most frequently create compliance problems. Under SBA regulations, companies are considered affiliated when one controls or has the power to control the other, or a third party controls or has the power to control both. Affiliation through a teaming agreement, joint venture, or subcontracting relationship can cause a small business to exceed its applicable size standard, making it ineligible for set-aside awards.
The mentor-protege affiliation exception is the most important carve-out. Within an approved SBA mentor-protege relationship, the mentor and protege are not considered affiliated for size determination purposes. This means a large mentor and small protege can form a joint venture that competes as a small business, provided the relationship is formally approved by the SBA.
Size recertification rules received a significant update in January 2025, when the SBA issued a final rule creating a unified recertification framework. Small businesses must now recertify their size within 30 days of a merger, sale, or acquisition. For contracts exceeding five years, recertification is required before the end of the fifth year and at each option period thereafter. The “small-on-small exception” allows combined entities from mergers of two small businesses to remain eligible for set-aside Multiple Award Contract orders, providing some relief for small business consolidation.
Subcontracting Plans and Limitations on Subcontracting
Two distinct regulatory requirements govern how work is distributed in prime-subcontractor teaming arrangements.
Subcontracting plans. Effective October 2025, the threshold for subcontracting plan requirements under FAR 19.702 increased from $750,000 to $900,000 for services and supplies, and from $1.5 million to $2 million for construction. Any contract exceeding these thresholds that includes subcontracting possibilities requires the prime contractor to submit an acceptable subcontracting plan with separate percentage goals for each small business category. Large business primes must demonstrate good-faith efforts to meet these goals, and agencies track and report subcontracting plan performance.
Limitations on subcontracting. Under FAR 52.219-14, small business prime contractors on set-aside contracts cannot subcontract more than a specified percentage to non-similarly-situated entities. For services contracts, the limit is 50%. For general construction, 85% (excluding materials). For special trade construction, 75% (excluding materials). “Similarly situated entities,” meaning first-tier subcontractors with the same small business status as the prime, count toward the prime’s self-performance requirement.
These rules create both constraints and opportunities for teaming arrangements. A small business prime that teams with another small business of the same designation (for example, two service-disabled veteran-owned small businesses on an SDVOSB set-aside) can distribute work more freely than a team where the prime and subcontractor hold different small business designations.
For small business subcategory results in FY2024, the numbers tell a clear story: service-disabled veteran-owned small businesses won 5.14% of contracts ($32.8 billion), women-owned small businesses won 4.97% ($31.7 billion), and small disadvantaged businesses achieved 12.27% ($78.3 billion) against a 13% goal. Each of these categories represents a distinct set-aside market where teaming strategies and limitations on subcontracting interact.
Organizational Conflicts of Interest
OCI risks are among the most underappreciated hazards in teaming. A January 2025 FAR Council proposed rule would eliminate FAR Subpart 9.5 and create a new FAR Subpart 3.12 dedicated to OCI prevention. The three recognized OCI types are unequal access to information, impaired objectivity, and biased ground rules.
For teaming arrangements, OCI risks arise most frequently when a company providing advisory or systems engineering services to a government program attempts to team with a company competing for contracts under that same program. The advisory company’s access to nonpublic information and requirements documents can create an unequal access OCI that disqualifies the entire team. Companies must conduct OCI screening before entering teaming agreements; a strategically attractive arrangement becomes a liability if one partner’s existing government work creates an unmitigable conflict.
What Primes Actually Look for in Teaming Partners
Understanding what prime contractors value in subcontracting partners is essential for small businesses seeking teaming opportunities.
Prime contractors evaluate potential teammates on several dimensions beyond raw technical capability. Set-aside eligibility is often the threshold criterion: primes need teammates whose work counts toward their subcontracting goals. A small business holding multiple designations (small disadvantaged business, SDVOSB, HUBZone, WOSB) creates more subcontracting plan credit with a single teaming relationship.
Past performance on relevant contract vehicles matters because the evaluation of a prime’s proposal typically includes assessment of its proposed subcontractors’ qualifications. A teaming partner with its own IDIQ positions and strong CPARS ratings reduces risk for the prime.
Existing clearances and compliance infrastructure reduce onboarding time. A small business that already holds a facility clearance, maintains CMMC certification, and has cleared personnel ready to start immediately is far more valuable than one needing six to twelve months of compliance buildout.
Geographic presence near the end customer can be decisive for contracts requiring on-site performance at military installations.
Common Pitfalls and How to Avoid Them
Unenforceable teaming agreements. The Cyberlock decision and its progeny mean that a teaming agreement with vague language about future negotiations may not be worth the paper it is printed on. To be enforceable, a teaming agreement should include an unqualified obligation to award and accept a subcontract, defined scope with specific workshare percentages, and an established pricing methodology. Companies should treat the teaming agreement as a substantive contract, not a letter of intent.
Exclusivity without protection. Many teaming agreements include exclusivity clauses that prevent one or both parties from teaming with competitors on the same procurement. Exclusivity creates real opportunity cost, and it should be accompanied by clear obligations: defined workshare minimums, termination rights if the prime fails to submit a proposal, and compensation provisions if the prime replaces the teaming partner after award.
Size standard violations. Teaming arrangements that create affiliation between a large business and a small business can disqualify the small business from set-aside competitions. Any teaming relationship should be reviewed against current SBA affiliation rules before proposal submission. This is particularly important in the current regulatory environment, where the SBA is actively scrutinizing small business program eligibility.
Insufficient workshare documentation. For small business set-aside contracts, the limitations on subcontracting require the prime to perform a specified percentage of work itself (or through similarly situated subcontractors). Teaming arrangements must be structured to comply with these limitations from day one, not retrofitted after award.
The Regulatory Landscape Is Shifting
Several regulatory shifts are reshaping teaming strategy. The FY2026 NDAA raised the TINA threshold from $2 million to $10 million for contracts awarded after June 30, 2026, reducing cost and pricing data requirements that disproportionately burden small subcontractors.
The SBA’s June 2026 proposed rule ending race-based presumptions for social disadvantage in the 8(a) program, combined with the suspension of 1,091 8(a) contractors in January 2026 for failing to produce required financial documents, signals a more enforcement-oriented posture. Companies relying on 8(a) set-asides as part of their teaming strategy should monitor these developments closely.
Getting Teaming Right
Teaming is not optional for most small defense contractors. The contract vehicles are too large, the capability requirements too broad, and the past performance barriers too high for small businesses to compete independently on the opportunities that drive real revenue growth.
But teaming done poorly is worse than not teaming at all. An unenforceable teaming agreement wastes proposal investment. An affiliation-creating joint venture disqualifies the small business from set-aside markets. An OCI-tainted team gets excluded from the competition entirely.
The companies that build sustainable defense businesses through teaming are the ones that treat teaming as a legal and regulatory discipline, not just a business development tactic. They negotiate enforceable agreements with specific workshare commitments. They screen for affiliation and OCI risks before signing. They structure relationships to comply with limitations on subcontracting from day one. And they invest in the compliance infrastructure, clearances, and past performance record that make them valuable to prime contractors year after year, not just on a single pursuit.
The $183.5 billion in FY2024 small business contract awards demonstrates that the market rewards small businesses that know how to compete. Teaming is the mechanism that makes competition possible at scale. The structure of that teaming determines whether it creates lasting competitive advantage or just another unfulfilled promise on paper.