United States: How To Improve Your Teaming Agreement, Part I

Last Updated: February 12 2015
Article by Stephen P. Mulligan

Most companies design their contracts with dual goals in mind: to execute the deal, but to also prepare in the event of a breach. When it comes to teaming agreements, however, even the most sophisticated contractors lose sight of the need for protection if the relationship sours. With a lucrative U.S. federal government contract waiting in the wings, team members assume everything will work out once they receive the contract award.

Too often, this rosy optimism proves short-lived. When it comes time to actually negotiate and perform the subcontract, the parties may find themselves having successfully bid for the prime contract, but unable to negotiate their internal agreement. When this occurs, many tread into the unpredictable no-man's land of teaming agreement litigation.

An improved agreement can help avoid those murky waters and create stability and predictability in future disputes. This series of articles is intended to guide all government contractors—primes and subs—on how to restructure their teaming agreements to protect themselves in the event of a failed relationship.

How Do Teaming Agreement Disputes Arise?

Federal regulations encourage prime contractors to team with one or more companies when they bid for projects with the U.S. government and its agencies.1 These relationships, usually memorialized in teaming agreements, allow companies to complement each other's capabilities and offer the government a wider range of skills, backgrounds, and preferential statuses, such as veteran-owned small business or small disadvantaged business.2 Typically, a potential subcontractor (team member) agrees to support the proposal of the prime contractor (team leader) by providing information and lending its qualifications to the bid.3 In exchange, the team leader offers to execute a subcontract or attempt to negotiate a subcontract with the team member if it receives the prime contract.

In most cases, the parties honor their respective agreements, but there are times when a falling out occurs before they have had a chance to finalize the subcontract.4 For example, a team leader may come to learn that it can more profitably obtain its teammate's services elsewhere and force its teammate to compete with other subcontractors.5 On the other hand, a team member can find itself unable to deliver on its promise to provide specialized services, forcing the team leader to obtain a replacement subcontractor at a higher cost.6 When these breakdowns occur, one party may file suit for breach of the teaming agreement—a form of litigation fraught with uncertainty.

The Murky Waters of Teaming Agreement Litigation

Teaming agreement litigation is not a new field. As far back as 1964, U.S. courts have recognized and enforced agreements in which one entity teams with a partner to bid on a government contract in exchange for an anticipated subcontract.7 Despite a half-century of litigation, there is little consistency or predictability as to whether these forms of agreements are enforceable, even within individual jurisdictions.8

Early case law suggested teaming agreements were per se enforceable.9 In Air Technology Corp. v. General Elec. Co., the Massachusetts Supreme Court became the first court to analyze the validity of a teaming agreement, and it held that General Electric breached the parties' oral agreement when it refused to negotiate a subcontract with its team member.10

After a lull in teaming agreement litigation following Air Technology Corp, several courts in the 1990s followed the trend of enforcing these agreements.11 In Steiner Marine Corp. v. RCA, a Southern District of Alabama jury awarded a verdict to a disappointed subcontractor who alleged that the team leader breached a promise to award a subcontract after winning the prime.12

Similarly, in ATACS Corp. v. Trans World Commc'ns, Inc., a seminal case on teaming agreements,13 the Third Circuit affirmed that the prime contractor's decision to solicit bids for potential subcontracts from competitors of its teaming partner constituted a breach of its teaming agreement.14 The Third Circuit concluded that a promise to engage in good faith negotiations for a subcontract was sufficiently definite to be enforceable, and that the parties' conduct demonstrated an intent to be bound by their agreement.15

In the late 1990s, however, this authority splintered with several courts holding that the common terms of most teaming agreements are unenforceable "agreements to agree." In W.J. Schafer Associates, Inc. v. Cordant, Inc., the U.S. Air Force sought bids for a contract to convert personnel files into a computerized database.16 The teaming agreement stated that the parties would negotiate the specific terms of a subcontract if the prime contract was awarded to the team leader.17 After the leader won the prime, the team member was unable to supply the computerized goods, known as "digitizers," needed to convert the paper documents to microfiche.18 The leader sued for breach of the teaming agreement, and prevailed at trial, but the Virginia Supreme Court reversed the decision, holding that the post-award subcontract negotiation provision was a legally unenforceable agreement to agree.19

That same year, the Fourth Circuit reached an identical conclusion applying California law.20 In Dual, Inc. v. Symvionics, Inc., a team member sought damages for alleged breach of a teaming agreement's obligation to execute a subcontract to design a flight simulator. The Fourth Circuit ruled that the teaming agreement's "good faith provision was an unenforceable 'agreement to agree'" under California law.21

However, this is far from the end of the story. In the last 20 years, courts have applied varying approaches to teaming agreement litigation with many decisions hinging on the nuances in the specific language of the contract. Virginia courts alone have changed positions three times on the enforceability of teaming agreements.

Although the Virginia Supreme Court refused to enforce the teaming agreement in W.J. Schafer, a Virginia trial court distinguished that case and enforced a similar agreement just six years later.22 The trial judge in EG&G v. The Cube Corporation noted that, whereas most teaming agreements include a requirement to negotiate a subcontract in good faith, its agreement stated that one party "would" be awarded the subcontract.23 This single word change was a key factor in deciding between enforceability and unenforceability of the teaming agreement.

Since 2000, numerous courts nationwide have followed this logic and enforced teaming agreements,24 while many others held them to be too vague to adjudicate.25 Most recently, the Eastern District of Virginia flipped Virginia precedent yet again and declined to enforce a teaming agreement between two federal contractors.26 The Cyberlock court distinguished its agreement from other enforceable contracts because it included a provision calling for termination of the teaming agreement in the event of a "failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations."27

While commentators have attempted to apply some organizational rules to these disparate rulings,28 the Virginia example demonstrates that the enforceability of teaming agreements can be nearly impossible to predict.

The second installment in this series will be featured in the next issue of Contract Management and will provide practical tips on how to improve teaming agreements in light of the uncertain case law.

Originally published by Contract Management Magazine.

Footnotes

1. See Federal Acquisition Regulation (FAR) 9.602 and 9.603.

2. See "Recommended Provisions for Teaming Agreements to Help Assure They Are Not Unenforceable 'Agreements to Agree,'" Squire Sanders (April 2014), available at http://tinyurl.com/kfw43ss; and Darrell J. Oyer, Accounting For Government Contracts: Federal Acquisition Regulations (2014).

3. See Recommended Provisions for Teaming Agreements, ibid.; see also ATACS Corp. v. Trans World Commc'ns, Inc., 155 F.3d 659, 666 (3d Cir. 1998).

4. See Recommended Provisions for Teaming Agreements, note 2.

5. For example, in ATACS Corp., the team leader obtained lower-cost proposals from the team member's competitors after entering into a teaming relationship. (See 155 F.3d at 668-69.)

6. See W.J. Schafer Associates, Inc. v. Cordant, Inc., 254 Va. 514 (1997).

7. Ibid. The FAR now formally recognizes teaming agreements. (See FAR 9.602 and 9.603.)

8. See Madalyn A. Murtha, "The Enforceability of Teaming Agreements in Government Contracting and its Effect on Contract Formation," The Procurement Lawyer, 23 (Summer 2014); Oyer, note 2; and Thomas L. Patten, et al., "Teaming Agreements: Basic Principles and Guidelines," Government Contractor Briefing Papers No. 84-4, at 1 (1984).

9. See ATACS Corp., 155 F.3d 659; Air Tech. Corp., 199 N.E.2d 538; and Steiner Marine Corp. v. RCA, No. 88-0558 (S.D. Ala. 1991).

10. Brent E. Newton, Note, "The Legal Effect of Government Contractor Teaming Agreements: A Proposal for Determining Liability and Assessing Damages in Event of Breach," Columbia Law Review 1990, 2010 (1991).

11. E.g., ATACS Corp., 155 F.3d 659, and Steiner Marine Corp., No. 88-0558.

12. See Newton, note 10, at 2012 n. 115.

13. See Murtha, note 8, at 25.

14. ATACS Corp., 155 F.3d at 668–669.

15. Ibid., at 668.

16. W.J. Schafer Associates, Inc. v. Cordant, Inc., 254 Va. 514 (1997).

17. Ibid., at 517.

18. Ibid., at 518.

19. Ibid., at 519–520.

20. Dual, Inc. v. Symvionics, Inc., No. 97-1228, 1997 U.S. App. LEXIS 23959 (4th Cir. Sept. 12, 1997).

21. Ibid., at *11.

22. EG&G v. The Cube Corporation, 63 Va. Cir. 634 (Va. Cir. Ct. 2002).

23. Ibid., at 649.

24. E.g., Lowry Holding Co., Inc. v. Geroco Tech Holding Corp., not reported in N.W.2d, 2012 WL 1890231 (Mich. Ct. App. May 24, 2012); BAE Sys. Info. & Elec. Sys. Integration, 2009 Del. Ch. LEXIS 17; and X Techs., Inc. v. Marvin Test Sys., 719 F.3d 406, 408 (5th Cir. 2013) (affirming jury verdict enforcing exclusivity clause in teaming agreement).

25. E.g., Martin v. Martin, 326 S.W.3d 741, 748-49 (Tex. App. 2010); Syringa Networds, LLC v. Idaho Dept. of Admin., No. 38735, 2013 WL 1276493 at *6 (Idaho March 29, 2013); and C.H.S. Constr. Co., Inc. v. Mast Constr. Servs., Inc., not reported in A.3d, 2012 WL 488923 (N.J. Super. Ct. App. Div. Feb. 16, 2012).

26. Cyberlock Consulting, Inc. v. Info. Experts, Inc., 939 F. Supp. 2d 572, 580 (E.D. Va. 2013), aff'd No. 13-1599, 2014 U.S. App. LEXIS 322 (4th Cir. 2014).

27. Ibid., at 581.

28. Murtha organized the disparate teaming agreement decisions into five categories: 1) liberal view (always enforceable); 2) moderate liberal view (enforceable if intent to be bound is evident by parties' actions); 3) centrist view (enforceable if material terms are reasonably certain and intent to be bound is shown); 4) moderate conservative view (enforceable only if all material terms are clear); and 5) conservative view (generally unenforceable). (Murtha, see note 8, at 23–24.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.