Teaming Agreements Aren't Always Enforceable

Teaming Agreements Aren't Always Enforceable

When is an agreement not legally binding? When it's a teaming agreement, according to the Virginia Supreme Court.

In W.J. Schafer Associates Inc. vs. Cordant Inc., Virginia's high court held that an agreement between two companies teaming on a contract proposal was invalid because it was too vague and indefinite to enforce.

The teaming agreement in this case lacked specific pricing terms, even though it contained initial pricing information. In addition, it bound the parties only to negotiate a subcontract "in good faith" rather than require any specific work, and allowed the prime contractor to withdraw from the team anytime before award. The court found the parties lacked the mutual assent necessary to bind them to reasonably certain contractual terms.

Sound familiar? Many teaming agreements are quite similar to the one in the Cordant case. Used widely in public procurements, teaming agreements are described generally as an arrangement between two or more contractors to cooperate in connection with a particular government procurement.

The arrangement reflects the parties' mutual intent to bid on a certain program (with one contractor acting as the prime and the other as a subcontractor), with the understanding they will later negotiate a more detailed subcontract.

Teaming agreements enable contractors to complement each other's capabilities and offer better performance than if either company pursues the work alone. They also offer emerging companies lacking sufficient financial or technical resources a chance to participate in procurements with more established contractors. Small and small-disadvantaged businesses particularly are attracted to teaming arrangements to gain valuable experience from larger firms.

Yet teaming agreements generally are viewed as merely agreements to agree. They bind the parties to nothing more than submission of proposal data, a requirement to cooperate in the proposal preparation effort, an assurance not to disclose each other's proprietary information, a commitment not to work with other parties on the same solicitation and a promise to enter into good faith negotiations on a subcontract once an award is made.

The bottom line is most teaming agreements, while providing clear language for what the parties desire in a subcontract relationship, do not always assure such a subcontract actually will result.

One could even consider teaming agreements as something akin to an engagement to be married. A happy couple falls in love and commits to a life of eternal bliss. The purported bride and groom (not unlike a potential prime and subcontractor) plan for the big day, promise not to seek the love of others, protect each other's confidences and agree to work toward consummating the marriage.

But until the vows are taken, until the perennial words "I do" are said, until the marriage certificate is signed, either party can simply walk away. In short, engagements, like teaming agreements, are merely agreements to agree to get married. The Virginia Supreme Court apparently has adopted that view.

This is not to say teaming agreements have no value. They are, in many cases, invaluable tools in establishing profitable strategic alliances, even if their enforceability is somewhat suspect. They may even be considered enforceable if certain terms are included.

Unlike in Cordant, a teaming agreement may pass the test of definiteness if it contains language that binds the parties to a subcontract agreement if certain circumstances exist at the time of prime contract award. For example, there should be provisions that require acceptance of prices offered by the teaming partner if that pricing is accepted by the government in awarding the contract. In addition, the agreement should contain well-defined performance obligations for each party, consistent with the solicitation's statement of work or other performance specifications.

Provisions to avoid are those allowing either party to end the agreement in "its sole discretion" or for other undefined reasons.

And, even though such agreements will unavoidably contain rather loose language that the parties will "negotiate in good faith" a subcontract, that obligation may be extended to include language requiring such negotiations be within certain price and performance parameters. This may not be possible in some procurements where, for example, the contracting effort is largely labor driven and rates may vary greatly between the time of pre-award initial bidding and post-award submission of a task order proposal.

The goal in achieving an enforceable teaming agreement is to prepare a document that contains clearly defined obligations of the parties. But, as nothing in the law is certain, there is still no certainty that any teaming agreement will be enforceable, at least in Virginia.

James Fontana is vice president and corporate counsel of Wang Government Services Inc. of McLean, Va. His e-mail address is james.fontana@wang.com.

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