Teaming agreements have become virtually universal in the world of government contracting, and their use is recognized and promoted in the Federal Acquisition Regulation. Given the prevalence of teaming agreements, it is our experience that many government contractors have developed a “form” teaming agreement, as they have with other often-used documents, such as form subcontracts.
Typical provisions included in a teaming agreement often include:
- Allocations of a specific percentage of the work share to each team member;
- A pledge of the team members to work together and to perform certain tasks in an effort to obtain the prime contract and that each member will bear its own costs incurred through such efforts;
- An agreement to enter into a subcontract upon winning the award,
- Termination provisions;
- Language addressing confidentiality;
- Agreement as to the exclusivity of the teaming arrangement, and more.
Oftentimes, there will be a Statement of Work attached to the teaming agreement setting out what will be required to perform under the contract and an allocation of that work to the respective team members.
The teaming agreement is ordinarily intended by at least one, if not both, of the parties to be an enforceable agreement committing the parties to certain specified courses of action if certain stated contingencies come to pass. But therein lies the problem: if the commencement of the performance is contingent upon a future occurrence of a specified event, such as the award of a government contract to the prime contractor, is the teaming agreement a contract that can be enforced or an unenforceable “agreement to agree”?
A relatively recent decision in the U.S. District Court for the Eastern District of Virginia addressed the issue of the enforceability of teaming agreements as contracts and its holdings are instructive on how at least one influential federal court comes down on this question.
In Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), aff’d 549 Fed. Appx. 211 (4th Cir. 2014), the court asked to determine the enforceability of a teaming agreement between Cyberlock and IE that, by its terms, was designed to set forth an arrangement between the parties to obtain a prime contract from the government and to set out the basis for a subcontract.
The teaming agreement provided the percentages of work that each party would perform upon award and attached to the teaming agreement was an exhibit that spelled out the anticipated scope of work and other pertinent information relative to the parties’ roles. The teaming agreement did not, however, include a proposed subcontract as an exhibit. It also contained language providing that if the parties could not enter an agreement on a subcontract after good-faith negotiations, then the teaming agreement would terminate.
The Cyberlock court cited to the well-established principle under Virginia law that an agreement to negotiate in good faith to reach certain stated objectives within an agreed framework will be construed as an agreement to agree rather than a valid contract. The court pointed out that the document was not named a “contract” but rather “teaming agreement” which in and of itself implied the parties meant it to be non-binding. The Court noted language in the teaming agreement addressing the possibility that the future contemplated transaction might not come to pass and references to future work with terms such as “anticipated.” The Court did not look to what the parties intended, because it found that the language of the teaming agreement was unambiguous in setting out an agreement to negotiate in good faith to enter a subcontract and thus an “agreement to agree” and unenforceable.
So, in light of Cyberlock, and similar cases in other circuits, what drafting measures can a contractor entering into a teaming agreement undertake to increase its chances of being enforced? While there is certainly no guarantee that these terms will compel a judge to enforce the terms of a teaming agreement, they should at least enhance the odds:
- Be clear and concise about the purpose of the teaming agreement;
- Make it mandatory that the prime contractor will enter a subcontract with the subcontractor;
- Include as much detail abut the proposed subcontract as possible in the teaming agreement and/or attach a copy as an exhibit;
- Avoid to the extent possible listing “outs”, that is, events that will trigger the termination of the teaming agreement;
- Establish an exclusive arrangement such that the parties go forward together to pursue the award or not at all; and
- Provide as many specifics about key provisions as possible, such as scope of work; confidentiality; duration; allocation of costs; protection of intellectual property; price; place of performance; dispute resolution, etc.
?Many a disgruntled subcontractor has been rebuffed by the courts when seeking to enforce the terms of a teaming agreement entered into in good faith, with the reasonable expectation that it would reap the benefits to which it believes it was promised in the early stages of its relationship with its teaming partner. While of course there is no guarantee that your next teaming agreement will lead to an award, a prudent contractor should at least bear in mind the lesson of Cyberlock and, at a minimum, draft its teaming agreement such that if the award should come, the parties will be bound to conform to the terms of the relationship that they contemplated when they first agreed to partner.
About the Author: Paul Mengel is counsel with PilieroMazza and leads the Litigation Group. He can be reached at pmengel@pilieromazza.com.