A Federal court recently struck a great blow to the validity of Teaming Agreements. Some Teaming Agreements, arrangements of understanding between Prime and Sub contractors, may now be unenforceable as contracts in Virginia and other states.
Teaming Agreements are useful for defining the relationships between Prime and Sub contractors by defining the mutual expectations of each party. The clarity that Teaming Agreements provide remains necessary in today’s acquisition climate where Federal clients require complex and diverse services that often require teaming in order to meet all their requirements.
Despite recent court challenges, Teaming Agreements are not dead yet as solutions are available to keep them enforceable while preserving their benefits.
Understanding Teaming Agreements
Meeting today’s objectives for Federal acquisitions requires diverse capabilities and skill sets. In order to offer the wide range of services necessary to achieve complex objectives, contractors often will partner with one another in a Prime and Sub contractor relationship to take advantage of their different areas of expertise when submitting proposals.
The Federal Acquisition Regulation (FAR) recognizes the benefits and desirability of Teaming Agreements for offering the government the best combination of complementary capabilities. Defining the expectations of each party is a necessary step that will better position the teams for a successful relationship. The investment of time and resources in working on a proposal provides incentives to both parties to have an enforceable agreement to work together in the event of an award, and to share in the success of that award.
The proposal process, however, requires flexibility in pricing and specific obligations that a full Subcontract cannot provide. Teaming Agreements give the understanding needed between the Prime and Sub during the proposal process while also providing flexibility to change important terms later after winning an award. The main issue now is whether recent court decisions have rendered Teaming Agreements unenforceable because of the beneficial flexibility they provide.
Contracts versus Agreements to Agree
The central focus of whether or not Teaming Agreements are enforceable is whether they can be classified as contracts or merely agreements to agree. Contracts, whether between government contractors or consumers and retailers, all require the same elements: a meeting of the minds between the parties, promises to perform, and valuable consideration given in exchange. If an agreement has all of the necessary elements of a contract then a court will generally hold it to be enforceable.
Any agreement, even if in writing, that states the parties will only agree to terms in the future will often not be held enforceable. Agreements to agree are generally unenforceable as contracts because courts will find that the parties have not had a true “meeting of the minds” or there was no exchange of valuable consideration given. The FAR recognizes the integrity and validity of Teaming Agreements, but whether or not the agreements are enforceable as contracts is usually determined by the state law where the agreement was entered into. The problem that two contractors found recently was that their Teaming Agreement was found to be an agreement to agree and thus not enforceable.
The Cyberlock Decision
Earlier this year, in Cyberlock Consulting, Inc. v. Information Experts, Inc., the U.S. District Court for the Eastern District of Virginia held that the particular Teaming Agreement between the two parties was not enforceable under Virginia law because it was essentially an agreement to agree. The two contractors, Cyberlock and Information Experts, entered into a written Teaming Agreement in Virginia, thus the Federal court applied Virginia law to determine whether or not the agreement was a contract.
The court laid out various factors that it considered when deciding on the enforceability of the agreement including the terms guiding a future subcontract, termination clause language, and language specifying what work is to be done by the parties. The court stated that because the agreement did not lay out in detail the obligations of each party and did not include an exclusivity clause or a “model” subcontract to be signed upon award of the Prime contract, there had been no “meeting of the minds.” Given the court’s analysis, there is still likely room to create Teaming Agreements that are enforceable.
Solutions for Teaming Agreements
- Adding Specificity or Exclusivity Clauses to the Agreement: The court in Cyberlock noted that more detailed agreements which laid out the duties, obligations, and specific promises that the parties were making, were likely to be held enforceable. Ensuring that there is enough evidence of a “meeting of the minds” and specific promises made in a Teaming Agreement will increase the chances that a court finds the agreement to be an enforceable contract. Depending on the risks for both parties, they also may wish to just draft a complete subcontract before award which would only take effect upon award of an actual contract.
- Choosing a More Favorable Forum or Arbitration: In some circumstances it may be advantageous to the contracting parties to choose a more favorable state’s law to govern their contracting agreement. Some states, such as Delaware, are more likely to hold Teaming Agreements enforceable despite lacking specificity of more formal contracts. The parties may be able to agree that their contract is to be governed by Delaware law while still choosing a different venue for disputes. The contractors could also choose to have their agreement include an arbitration clause calling for private arbitration of any disputes arising from the agreement. The drafting of these types of clauses and the choice of law would need to be performed by a licensed attorney with an understanding of the forum and governing states’ laws.
- Choosing Alternative Arrangements: Teaming partners have options when working together to offer the government a package of complementary services. Instead of a traditional Prime and Sub contractor arrangement, contractors can form a Joint Venture when submitting a proposal. Contractors can also join together for specific Contractor Teaming Arrangements (CTA) under their existing GSA MAS Schedule contracts. These alternative arrangements, when used in the right circumstances, give added flexibility and are already acknowledged by the FAR and federal agencies.
Teaming Agreements, as the FAR states, do provide an advantage for Federal clients and contractors alike by allowing parties to offer proposals with complementary services. Teaming Agreements are all the more important today with the current trend by federal agencies to consolidate contracts that require blending a vast array of skills. The court’s decision in Cyberlock did strike a blow to those contractors wishing to enter traditional Teaming Agreements, particularly in the Commonwealth of Virginia. With some creativity and counsel by a licensed attorney, however, contractors can preserve the flexibility and security that Teaming Arrangements offer while still being enforceable as contracts.
Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Please consult a licensed attorney in your state for advice on drafting your specific teaming agreement.