Government contractors often form strategic alliances to enhance their competitiveness. By partnering on opportunities, they can compete for contracts they may be ineligible for as individual entities or better posture for award. To memorialize this partnership, typically the parties enter into a teaming agreement. In addition to standard terms and conditions, these contracts also address matters that are unique to the government contracts market, like partnership exclusivity on the bid and the post-award prime/sub relationship. With the abundance of alliances in government contracting, teaming agreements are a critical component of the process. But ensuring their enforceability if a dispute arises can be difficult.
A notable dispute that usually generates an enforceability question is when a prime receives an award but does not subcontract with the sub with whom it entered into a teaming agreement and then the sub sues it for breach of contract. The core issue becomes whether the language in the teaming agreement is sufficiently definite to create an enforceable obligation against the prime. Many courts, especially those in Virginia, have held that teaming agreements indicating the parties will negotiate a subcontract in good faith upon award of a government contract are simply “agreements to agree” and are inadequate to support a breach of contract claim.
However, a case exists out of the U.S. District Court for the Southern District of Texas that takes a different approach on whether a teaming agreement is enforceable. In Probado Techs. Corp. v. Smartnet, Inc., CIV.A. C-09-349, 2010 WL 2232831 (S.D. Tex. June 2, 2010), a disgruntled teaming partner sued the prime for breach of the teaming agreement because it did not enter into a subcontract agreement with it upon award of the government contract. The prime contractor unsuccessfully moved to dismiss claiming the sub failed to plead an enforceable requirement to subcontract. The court’s analysis centered around how the FAR defines teaming agreements. It stated that the FAR outlines two material terms – that the parties 1) agree to work together on a 2) specified government contract. Additionally, the court relied on the fact that the submitted proposals to the government specified the parties had teamed for the project and both would be performing the work as further evidence of an enforceable agreement.
While Probabo exists, given the more wide-spread, and more recent, precedent on teaming agreements being enforceable provided they include definitive terms, the best practice for primes and subs is to ensure that the contract’s language goes beyond an agreement to negotiate a subcontract upon a future award. Specifically, the language should reflect an unqualified (i.e. “shall”) obligation to award and accept a subcontract. Moreover, the parties should include detailed provisions outlining the responsibilities of each party and percentages of work, subcontract pricing, duration of performance, and even attach a copy of the negotiated subcontract to the teaming agreement. And finally, the parties should carefully survey and consider the governing law of the agreement, favoring jurisdictions that have less stringent criteria for enforceability.
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