Scott Lyon

OPINION

Think your teaming agreement's a contract? Think again

Familar terms aren't binding

Is your teaming agreement enforceable? Maybe not, according to a recent federal court decision involving local contractors.

Before we address the particulars of the case, take a look below at some standard teaming agreement provisions. How many of these terms are in your agreements? 

  • Upon contract award, Party A will perform 51 percent of the work and Party B will perform 49 percent of the work;
  • The parties will exert reasonable efforts to obtain a prime contract, and in the event of an award, will negotiate in good faith the terms of a subcontract to be executed by the parties;
  • The statement of work attached hereto establishes the anticipated scope of work for team member based on the parties’ current understanding of the client’s needs;
  • This agreement shall terminate in the event that the parties cannot reach agreement on a subcontract after a reasonable period of good-faith negotiations.

Most of us have seen language similar to this in hundreds, if not thousands, of teaming agreements. In April, a federal court in Alexandria, Va., looked at whether such terms in a teaming agreement are enforceable under Virginia law. Surprisingly, the court determined that terms like those noted above are nothing more than an “agreement to agree” in the future; therefore, the court found that the teaming agreement including such terms was not enforceable under Virginia law.

The case involved two D.C.-area government contractors who teamed to bid on a contract re-compete for project management and cyber security services and solutions at the Office of Personnel Management. The prime contractor, Information Experts Inc. (IE), and subcontractor Cyberlock Consulting Inc. had been incumbents on the previous program and, when the re-compete was announced, they signed a teaming agreement to pursue the follow-on contract. The teaming agreement included terms that were similar - and, in some cases, identical - to the terms listed above.

Specifically, the “purpose” of the teaming agreement was to set forth the arrangement between IE and Cyberlock to obtain an award of the program, and establish a team to pursue the OPM opportunity. The statement of work attached to the teaming agreement established an anticipated scope of work “as presently understood by the parties” and, that in the event of an award of a prime contract, IE would perform 51 percent and Cyberlock 49 percent.

The SOW, however, did not include additional details about the work that the subcontractor would perform. Finally, the teaming agreement provided that the agreement could be terminated in the event that the parties could not reach agreement on a subcontract “after a reasonable period of good faith negotiations.”

The court looked at the agreement as a whole and, in particular, at the clauses like those noted above. Virginia law provides that for a contract to be enforceable, there must be mutual assent of the contracting parties to terms reasonably certain under the circumstances.

 Mere “agreements to agree in the future” are too vague and indefinite to be enforced in Virginia. The court noted that an agreement to negotiate open issues in good faith toward achieving a contract in the future will be construed as an agreement to agree rather than a valid contract.

With this precedent in mind, the court held that the teaming agreement between Cyberlock and IE was not an enforceable contract under Virginia law, but rather an unenforceable agreement to agree in the future.

So, what’s a government contractor to do in light of this new legal precedent?

First, contractors should consider whether another state’s law may be more appropriate for governing the interpretation of teaming agreements. The District of Columbia or Maryland may provide viable alternatives. Also, contractors should provide as much detail as possible about the work share and description of each party’s duties under the teaming agreement. Attaching a copy of the proposed contract, or even pre-negotiating a subcontract, may also provide some assurance that a court would find the agreement definite enough to enforce.

Finally, watch for future rulings on this matter. It is certainly possible that an appellate tribunal could reverse this decision. Some contractors can take solace in the fact that this decision is from a federal court, construing Virginia law. It is possible that a Virginia court could disagree with the federal judge’s analysis. Obviously, this is an unsettled area of the law, and contractors are well-advised to review their teaming agreements and consult with their legal counsel for guidance.

Reader Comments

Thu, Aug 15, 2013 Jean Singapore

This judgment causes great confusion between a teaming agreement and a memorandum of understanding. Does anyone else agree with me?

Tue, Jul 9, 2013

Any J.D. can tell you that a Federal ruling controls/binding over a State. Unclear whether Lyon is aware of this legally significant issue. See Con Law I. :)

Tue, May 14, 2013 SPMayor Summit Point, WV

From what I have observed the agreements underlying both sets of plans are 'converted' to formal subcontracts [usually of the IDIQ type] after award. The Government may on occasion request copies of such agreements as supporting documentation for the substance of the plans. Where plans are specifically called out in Section M as elements of the evaluation their importance is increased.

Tue, May 14, 2013

This is a terrible decision and I hope it is appealed and reversed. While some of terms are clearly intended to be negotiated later, some of the terms are material and need to be enforceable under the TA itself, e.g. protection of information, as many TA include NDA terms. Also, terms with require disclosure of any potential OCI are relied upon. At the very least, severability should have been recognized.

Tue, May 14, 2013 Scott Lyon

Excellent question, Mr. Mayor. As you are probably aware, the governmental policy set forth at FAR 9.603 recognizes the integrity and validity of "contractor team arrangements". Also, I believe that the "subcontracting plans & utilization plans" that you mention are based on actual subcontracts and subcontracting data rather than teaming agreements. Thus, it seems to me that the government contracting officer or other authority could recognize or otherwise credit a team even if the court does not enforce the actual teaming agreement. Also, it is interesting that this is a case of a federal judge interpreting Virginia law. It is possible that a Virginia state court or judge will disagree with, and refuse to follow, this opinion. Finally, an appeal may be in the cards. The Fourth Circuit may have a different view as well.

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