By: Edward T. DeLisle & Maria L. Panichelli
Teaming Agreements in the world of federal procurement are commonplace. They are formally encouraged by the government at FAR part 9.602 (wherein it states that “Contractor team arrangements may be desirable from both a Government and industry standpoint in order to…complement [contractor]’s capabilities; and [o]ffer the Government the best combination of performance, cost, and delivery…”) and can be critically important to small, and small disadvantaged, business concerns in winning small business set-aside contracts of all types. Very often a government agency will consider the collective strength of a team’s credentials in awarding such contracts, particularly if the procurement is of the larger variety. But what if a government agency awards a contract based on a teaming agreement, and you and your teammate cannot then reach accord on a subcontract agreement? Can you sue to enforce the teaming agreement? A recent decision from Virginia provides some guidance.
Cyberlock Consulting, Inc. v. Information Experts, Inc. was truly a tale of two agreements. The plaintiff, Cyberlock Consulting, Inc. (“Cyberlock”), entered into two separate and distinct teaming agreements with the defendant, Information Experts (“IE”). In both cases, IE was the prospective prime contractor. In the first agreement, the parties very clearly set forth their intent to be bound to each other. The language was clear. Reinforcing that intent, the agreement had appended to it a very detailed breakdown of the scope of work to be completed by each party in the event of award. Also attached was a formal subcontract agreement. The teaming agreement clearly stated that, if IE was awarded the prime contract, IE would, “within five (5) business days from date of award...enter into the subcontract attached to this Agreement.” Lastly, the first teaming agreement identified a number of bases that could result in its termination. None of those bases included the failure to agree upon the terms of a subcontract agreement.
The second teaming agreement, which pertained to a different solicitation, stood in stark contrast to the first. The second teaming agreement identified only a generic “percentage of work” to be completed by each party. The attention to detail, and the explicit assignment of specific, discrete tasks, which was evident in the first teaming agreement, was conspicuously absent in the second. Moreover, the parties did not attach a draft subcontract to the second teaming agreement, as they did with the first agreement. In addition, the second teaming agreement contained language providing for a number of situations that could result in termination of the relationship, including the “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.”
While I find it a little odd that Cyberlock would agree to terms that were so drastically different than those contained in the first teaming agreement, I’m sure there were reasons that it did so. Perhaps there was insufficient time to fully negotiate the second teaming agreement and Cyberlock simply trusted IE, especially after successfully negotiating the first agreement. Whatever the reason, it would come back to haunt Cyberlock later. Let’s consider what happened.
After entering into the first teaming agreement, the government agency awarded IE a prime contract; IE and Cyberlock quickly executed the subcontract agreement attached to the teaming agreement. No problem. The problems arose in connection with the second teaming agreement. Although IE received the prime contract in connection with the second solicitation as well, after negotiating for a month, IE and Cyberlock were unable to agree on a subcontract agreement. Cyberlock was NOT happy and sued IE.
It was up to a judge to determine whether the second teaming agreement was enforceable. It was Cyberlock’s position that it had a deal with IE. If IE was awarded a contract by the government, Cyberlock was entitled to a share of the work, in this case 49%. IE saw it differently. IE argued that the parties did not have an agreement at all. All they really did was “agree to negotiate later.” Such agreements, according to IE, were not enforceable. The judge agreed with IE.
Citing to Virginia law, the judge concluded that the second teaming agreement simply was not definitive enough to qualify as an enforceable agreement. The problem was that the parties left too many details up in the air, and subject to too many conditions, if IE were able to secure the prime contract. Most disturbing, the court went on to state the following: “Indeed, calling an agreement something other than a contract or a subcontract, such as a teaming agreement or a letter of intent, implies ‘that the parties intended it to be a nonbinding expression in contemplation of a future contract.’“ Wow...what is one to take from a statement like that? The FAR specifically refers to, and encourages, teaming agreements. How does that position comport with this court’s view?
While I think that the court went a hair too far in making that last statement, it does draw attention to something that is often taken for granted: the assumption that the document that you’re signing is enforceable. It’s actually something that you need to consider when it comes to teaming because, if successful, the parties do expect a second agreement, a subcontract (which, incidentally, is where all the money is) to follow their teaming agreement. That said, it’s not an issue that arises very often in my practice. Why? Well, I think because, very often where teaming takes place, the parties have a distinct need for each other. If, for example, a procurement is set aside for small disadvantaged businesses, such as 8(a) concerns or SDVOSBs, the small disadvantaged business may need a large business concern’s experience, or manpower, or bonding capacity to help it. On the flip side, the large business concern needs the small business concern for it would not have access to this set-aside work at all without the small business. It is assumed that things will work out just fine if an award is made. Let this opinion be a lesson that you really do need to consider the terms of your teaming agreement and, moreover, consider the possibility that things could go wrong.
Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.