Teaming agreements are arrangements entered into by two or more independent companies for the purpose of procuring and performing competitively-bid contracts. Such arrangements are generally formed so that contractors-who on their own would be unable to meet the bid requirements-can combine their respective expertise to compete in the realm of complex design and construction projects. The companies’ expertise are generally complimentary rather than competitive, which offers owners the “best combination of performance, cost, and delivery for the services being sought.”[i]
Although teaming agreements can be, and often are, used in private contracting, they are most commonly used in performing government projects. The teaming agreement structure proves beneficial in that arena for many reasons. For example, with contracts that are valued above $150,000, the business awarded the contract must agree to allow small businesses the maximum practicable opportunity to participate in contract performance. For the large contractor, utilizing the teaming agreement model demonstrates its commitment to ensuring small business participation and increases its chances of being awarded the contract.[ii] In return, small businesses competing for the set-aside contracts can team with a more experienced contractor to increase its odds of submitting the winning proposal.[iii] These, of course, are only some of the many benefits of the teaming agreement method.
Before entering into teaming arrangements, contractors should be aware of the challenges they sometimes pose. Most notably among the challenges is that teaming agreements have historically struggled to find a place as enforceable contracts. Many jurisdictions believed they were merely “agreements to agree” because they lacked the necessary elements of an enforceable contract, such as set prices and duties. This problem occurs because often the agreements are negotiated before a formal solicitation has even been issued. Thus, the parties are not able to reach formal agreements on technical and pricing systems, which can create incomplete agreements that reserve the exact terms to be established during future negotiations.[iv] The potential incompleteness of the agreement is what give rise to the question of their enforceability. Teaming agreements have increased in popularity, however, and many jurisdictions have been faced with answering whether or not they are enforceable. Washington courts have not decided what exactly will be required to make the agreement enforceable. To help ensure enforceability of a teaming agreement, contractors should make sure the parties intend to be bound by the agreement and the agreement has sufficiently definite terms, including price, quantity, and duration.[v]
A recent Federal Court decision casts light on some of the essential provisions stricter courts will require for a teaming agreement to cross the threshold from an “agreement to agree” into an enforceable, binding contract. In Cyberlock Consulting, Inc. v. Information Experts, Inc., a contractor and subcontractor entered a teaming agreement that required the parties to “exert reasonable efforts to obtain an [Information Experts] prime contract for the Program and to negotiate a subcontract for the Program in accordance with Exhibit A.”[vi] Exhibit A provided that the subcontractor would perform 49% of the functions and scope of work as relayed by the Government in the prime contract, but did not set out any further details of what the work performed by the subcontractor entailed. It also stated that the scope might change depending on the requirements of the prime contract. The agreement further conditioned award of the subcontract on the success of future negotiations and approval by the owner. Although the parties were awarded the prime contract, they could not reach an agreement regarding the terms of the subcontract. Thus, the subcontractor sued the general for breach of the teaming agreement.
The Court looked at the agreement as a whole and found the teaming agreement to be unenforceable. The Court noted that the agreement used some seemingly mandating language that the subcontractor would be awarded a portion of the prime contract. However, the Court held the use of such language, however strong, will not create a binding contract “if it can be clearly inferred from the rest of the paper that the parties had it in contemplation to enter into a future [contract].” Because the parties failed to define the scope of work and made the award of the subcontract contingent upon future negotiations and approval, the parties did not manifest an intent to be bound.
The Cyberlock decision represents a strict application of the plain meaning rule to teaming agreements, but some states apply the rule less strictly. In fact, some courts have validated agreements that specify terms will be negotiated and agreed upon in the future because it “impliedly places an obligation on the parties to negotiate in good faith.”[vii] The good faith obligation allows courts to determine whether there has been a breach by determining if the parties acted in bad faith. Thus, teaming agreements should articulate what state law will apply so the parties are clear as to what amount of will likely be required by a court in a later action by one party to enforce the agreement.
- Consider a provision that states the teaming agreement is not contingent upon the parties negotiating the subcontract in good faith sometime in the future.
- Consider a liquidated damages provision for the general contractor’s failure to award the subcontract.
- Clearly define the scope of work detailing specific services and materials to be provided as well as define the relationship between the parties.
- Set definitive price values or, at the very least, a definitive method for future determination of price values.
- Consider a governing law provision in a state that favors enforcement of teaming agreements.
- Attach a copy of the subcontract that will be used upon award of the prime contract.
[i] R. Fazio, J. Killian, “Creating and Enforcing Teaming Agreements,” Construction Law, Spring 2005, at 5.
[ii] M. Murtha, “The Enforceability of Teaming Agreements in Government Contracting and Its Effect on Agreement Formation,” Procurement Law, Summer 2014, at 22.
[v] R. Hanseman, C. Kidd, “Enforceability of Teaming Agreements,” Procurement Law, Fall 2010, at 18.
[vi] Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013).
[vii] Aviation Contractor Employees, Inc. v. U.S., 945 F.2d 1568 (Fed. Cir. 1991), 34 GC ¶ 33.