Teaming Agreements for the 21st Century (Part 2)

I started this topic more than a month ago.  Since then, we’ve had a GovConversations on the topic, and now I’ll expand on the topic. 

First, why are some teaming agreements unenforceable in Virginia?  When parties ask courts to do something, the courts like concrete terms and certainty about what the court is ordering.  This is because when a party violates a court order, the court may end up sending the party to jail for criminal contempt.  Courts are reluctant to create the possibility that someone will go to jail without certainty on what the court is ordering.  As a result, in Virginia, “it is well-settled that contractual provisions that ‘merely set out agreements to negotiate future subcontracts’ are unenforceable.’”  CGI Fed., Inc. v. FCi Fed., Inc., 814 SE 2d 183 (VA. 2018) (internal citation omitted).  There is no concrete standard for courts to hold the parties to.  Most teaming agreements include reference to negotiating a resulting subcontract as certain subcontract terms will be dependent on a yet undefined prime contract.  Thus, Virginia courts are reluctant to enforce them. 

One way to avoid this issue would be to include a full subcontract in the teaming agreement.  Such a subcontract would need to have fully certain terms with nothing to be negotiated later.  There could be conditional clauses determined at the execution of the prime contract, but those clauses could not be negotiable.  However, many government contractors will be reluctant to fully negotiate a subcontract at the teaming agreement stage when the solicitation may not have come out yet. 

Another way to address the underlying problem is a practice common in the merger and acquisition world: the breakup fee.  In many circumstances, the team lead is using some aspect of the team member in the proposal: a small business status, a key employee, or some unique capability.  In circumstances where the team lead wins, the team member should benefit.  Typically, that benefit would be a subcontract.  But in circumstances where the team lead elects to do the work itself or to use a different subcontractor, a cash payment may be appropriate. 

There are multiple ways a break-up fee could be structured.  Of course, any such fee should be contingent on a prime contract award.  If the prime contract is awarded and a subcontract is not, then the teaming agreement could provide that the team member would be entitled to its proposal preparation fees, some measure of damages commensurate with the opportunity, or a flat fee.  Any large team lead will be reluctant to agree to a breakup fee, but their refusal should raise concerns on its own; if they are willing to negotiate a subcontract in good faith, then no payment will be due. 

Teaming agreements can and should do more than they currently do.  Ensuring they are enforceable and making sure that they protect both parties’ rights is a good first step in ensuring they reach that goal. 

If you have questions about a pending teaming agreement or how you can make your future teaming agreements more effective, reach out to Brandon Graves or any of our attorneys to discuss further.