Joint ventures and subcontracting on government contracts — what's allowed

Most small businesses can't do every part of a government contract alone. Maybe you're strong on the technical work but have never held a contract this size. Maybe you need a Canadian partner to meet new content rules, or extra hands to hit a tight deadline. Teaming up with another company is often the answer — but government buyers have strict rules about how you do it, and getting the structure wrong can get your bid thrown out before anyone reads a word of it.

Joint venture vs subcontracting — the basic difference

A joint venture (JV) is when two or more companies agree to bid together as a single combined entity for one specific contract. Both companies sign the bid, both are named as the bidder, and both are usually jointly and severally liable — meaning the buyer can hold either company fully responsible if something goes wrong, not just the one that made the mistake.

Subcontracting is different. One company — the prime contractor — signs the contract and takes full responsibility for delivering it. The prime then hires other companies (subcontractors) to do parts of the work, but the buyer has no direct relationship with those subcontractors. If a subcontractor fails, it's the prime's problem to fix, not the buyer's.

The choice matters because it changes who takes on risk, who gets paid directly, and how buyers score your bid. Get this wrong at the proposal stage and you can't easily fix it later — most tenders don't let you change your team structure after submission.

Why teaming up can help you win

Government buyers care about capacity (can you actually deliver?) and past performance (have you done this before?). If your business is too small to meet either test alone, a JV or subcontracting arrangement can close the gap.

Common reasons small businesses team up:

• Bonding capacity — a bid bond or performance bond insurer may only back you for contracts up to a certain size. Partnering spreads that risk.
• Missing experience — you may have the skills but not three completed contracts of similar size to point to as references.
• Geographic reach — a national contract might need delivery in provinces where you have no presence yet.
• Specialized trades — a construction bid might need an electrical subcontractor, or a services bid might need a bilingual delivery partner.
• Canadian content rules — under the federal Buy Canadian Policy, some large contracts now require a set share of Canadian-made steel, aluminum or wood, or give an evaluation advantage to Canadian-owned suppliers. A domestic partner can help you meet that bar.

If you're still deciding whether teaming is the right move for a specific opportunity, our guide on when a joint bid beats going solo walks through the trade-offs in more detail.

What the tender document actually allows

Not every tender permits joint ventures. Some explicitly say "no joint bids" and only accept a single legal entity as the bidder, with subcontracting allowed underneath. Others welcome JVs but ask for a signed JV agreement as part of your submission.

Always check these three things before you assume teaming is allowed:

1. The bidder eligibility clause — does it say "the Bidder" (singular company) or does it explicitly permit "a joint venture of two or more entities"?
2. The security and clearance requirements — if the work needs a federal security clearance, every JV partner and sometimes every named subcontractor may need to hold one too.
3. Mandatory experience criteria — check whether past-performance references can come from any JV partner, or only from the entity that will sign the contract. This is exactly the kind of detail covered in our explainer on mandatory vs rated requirements — miss it and your whole bid can be disqualified on a technicality, no matter how good the price.

If the tender is silent on the question, don't guess. Ask during the bid question period and get the buyer's answer in writing before you submit.

How joint ventures are structured

A joint venture for a single bid is usually set up under a JV agreement — a private contract between the partner companies that sets out:

• Who leads the bid and signs on behalf of the JV
• How work, revenue and liability are split (often expressed as a percentage, e.g. 60/40)
• What happens if one partner can't deliver its share
• How disputes between the partners get resolved

Some buyers ask you to register the JV as its own legal structure before award; others only need the signed agreement attached to your bid. Read the tender's instructions to bidders carefully, because the format expected varies by department and by province.

Because both companies are usually on the hook together, JVs work best when you trust your partner's ability to deliver and you've checked their financial standing. A weak partner in a JV can drag down a strong one — the buyer won't separate you out when something goes wrong.

What you can and can't subcontract

Subcontracting is more flexible than a JV, but it isn't unlimited. Most government contracts include rules about how much of the work you can pass on, and to whom.

• Core scope of work — buyers usually expect the prime contractor to perform the majority of the contract itself, especially the parts tied to the criteria you were scored on. You can't win a bid on your team's expertise and then hand the whole job to someone else.
• Security-sensitive tasks — anything touching classified information, protected data or restricted sites often can't be subcontracted without prior written approval.
• Set-aside contracts — if the contract was awarded under a program like the Indigenous set-aside or the small business stream, there are usually rules about how much of the value must stay with the qualifying prime contractor, not flow out to subcontractors who don't qualify.
• Disclosure — many tenders ask you to name your major subcontractors (anyone doing more than a set percentage of the contract value) in your bid, along with their role and qualifications.

When you name subcontractors in your bid, treat their capability evidence with the same care as your own — a well-built capability statement for each partner strengthens the whole submission and shows the evaluator exactly who is doing what.

Buy Canadian, reciprocal procurement and what's changing in 2026

Canada's federal Buy Canadian Policy, rolling out from December 2025, gives an evaluation advantage to Canadian suppliers on strategic-sector federal contracts, starting at $25 million and due to expand down to $5 million by mid-2026. Large projects also carry Canadian-content rules for materials like steel, aluminum and wood.

Separately, reciprocal procurement rules taking effect in spring 2026 will restrict most non-defence federal contracts to Canadian suppliers and suppliers from "trusted partner" countries — shutting out bidders from countries that don't offer Canada similar access to their own government contracts.

Both changes matter directly for teaming decisions:

• If your company doesn't qualify as Canadian-owned or Canadian-content, partnering with one that does may be the difference between eligible and ineligible.
• If a subcontractor you'd normally use is based outside Canada or a trusted-partner country, check whether the reciprocal rules apply to that specific contract before you build them into your bid.
• A new Small Business Procurement Program, phasing in through 2026, includes "proportional requirements" — smaller, scaled-down qualification bars aimed at giving smaller Canadian firms a real shot, plus a shared "Tell Us Once" attestation system so you don't re-submit the same eligibility proof on every bid.

If any of this touches your sector, it's worth reading our fuller breakdown on preparing for the Buy Canadian Policy before you finalize a teaming structure.

Joint venture or subcontract — a quick comparison

	Joint venture	Subcontracting
Who signs the contract	All JV partners together	Only the prime contractor
Who is liable to the buyer	Usually all partners, jointly	Only the prime; sub answers to the prime, not the buyer
Who gets paid by the buyer	Depends on JV agreement; often the lead partner, then split	Only the prime; sub is paid by the prime, not the buyer
Past performance you can use	Often either partner's history, if tender allows	Usually only the prime's history counts for scoring
Typical use case	Neither company can meet the bar alone	One company leads and needs extra capacity or a specialty skill
Paperwork needed	Signed JV agreement, sometimes new legal entity	Subcontractor disclosure, letters of intent

Common mistakes that sink teamed bids

• Assuming JVs are allowed by default. Some tenders forbid them outright — always check the eligibility clause first.
• Missing signatures. Every JV partner usually needs to sign the bid form itself, not just a side letter.
• Double-counting experience. If two JV partners both claim the same past contract as a reference, buyers may only count it once.
• Undisclosed subcontractors. Adding a major subcontractor after award, when you didn't name them in the bid, can breach your contract terms.
• Ignoring the fine print on liability. Before you sign a JV agreement, understand exactly what you're on the hook for if your partner underperforms.
• Forgetting security and insurance requirements apply to partners too. A missing clearance or insurance certificate from one JV partner can disqualify the whole bid.

Before you commit to any teamed structure, it's worth running the opportunity through a basic contract risk assessment — and browsing live tender search to see whether the agency you're targeting has a track record of awarding to joint ventures or single primes, since that history often tells you more than the tender document alone.

Teaming up isn't a shortcut — it's a commitment that needs the same care as any other part of your bid. Get the structure right, disclose it clearly, and it can open contracts that would otherwise be out of reach; get it wrong, and it can sink a bid that was otherwise strong. As Canada's procurement rules keep shifting through 2026, expect buyers to ask sharper questions about who's really doing the work, so treat your teaming agreement as a live document worth revisiting on every new opportunity, not a template you fill in once and forget.