A teaming agreement is a common instrument used by government contractors. Whether your company is the prime or subcontractor, a well written teaming agreement can be essential in protecting your interests in a procurement opportunity. Because of the importance of teaming agreements to all parties, it is vital that the agreements are actually enforceable. A decision issued this Spring by the U.S. District Court for the Eastern District of Virginia may significantly affect whether your teaming agreements are enforceable.

The case heard by the Court (Cyberlock Consulting, Inc. v. Information Experts, Inc.) involved a very common scenario: The two parties entered into an agreement defining their relationship as prime and subcontractor on a specified contract opportunity, and the parties further agreed to negotiate a subcontract if the prime contractor received an award from the government.  The teaming agreement contained relatively standard language, setting forth the basis for the expected subcontract and establishing the workshare ratio between the parties. The teaming agreement at issue also contained a standard termination clause, including a provision allowing termination if the parties failed to reach agreement on a subcontract within a reasonable period of time.

The parties were ultimately unable to reach an agreement on a subcontract. The subcontractor filed a breach of contract claim against the prime, seeking to enforce the terms of the teaming agreement between the parties. The Court found that the teaming agreement was an unenforceable “agreement to agree,” and granted summary judgment in favor of the prime contractor, dismissing the subcontractor’s claim. The court reasoned that because the teaming agreement between the parties contemplated that a future subcontract would need to be negotiated and executed, and that this event may never happen, this meant that the parties never intended the teaming agreement to function as an actual binding agreement.

The Court found numerous issues with the teaming agreement that led to the finding it was unenforceable. Some of the issues discussed by the Court are as follows:

• The expected subcontract was discussed as merely a possibility;
• The subcontractor’s role in the performance of the prime contract was not defined;
• The teaming agreement stated that any subcontract “may be subject to the approval of the Client”;
• Any work to be directed to the subcontractor required negotiation and execution of a subcontract; and
• Any work to be directed to the subcontractor was subject to change depending on the resulting prime contract.

It is important to note that the Court did not state that all teaming agreements are, by their nature, unenforceable agreements. Rather, the Court held that this particular teaming agreement was not enforceable. Troubling for government contractors is that the agreement at issue appeared to contain many commonly used terms and conditions. The Court did leave the door open for a teaming agreement to be drafted in a way that it would be found to be enforceable, but reusing old teaming agreements may present a problem for contractors. If the old teaming agreement contains standard language, such as the agreement at issue in this case, contractors may be faced with disappointment if they ever need to enforce the teaming agreement.

Thus, it is highly recommended that any party seeking to enter into a teaming agreement, whether as a prime or subcontractor, consult with a knowledgeable advisor. It is crucial that your teaming agreement is drafted in a way to maximize its enforceability, so that your rights are properly protected. If you keep using your standard/old teaming agreement, it is highly possible that it may not be enforceable.