Agencies are allowed.
They can bid on behalf of their agency freelancers, but the client hires the feelancers through the agency, and pays the agency (through Upwork) who in turn pays the freelancers outside Upwork.
Responsibility for the work is with the agency.
Only the freelancers specifically hired by the client may touch the client's work.
Editing to add a help article: https://support.upwork.com/hc/en-us/articles/211063508
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