Will the promise of an anticipated prime contractor to pay compensation to a subcontractor- teaming partner in exchange for the subcontractor’s promise of exclusivity be enforceable in Virginia? We recently addressed that question for a client, the anticipated subcontractor-teaming partner.

Although Virginia courts have repeatedly declined to enforce deficient teaming agreements, their use among federal contracting teams remains common. The regular use of teaming arrangements is due in no small part to the nature of the federal procurement system because competitive success in larger procurements and set-aside procurements almost demand team approaches. But most teaming arrangements are faulty and would not likely be enforceable in Virginia. Virginia courts, for example, have declined enforcement of teaming agreements that are not supported by adequate consideration; consideration being an essential element of an enforceable contract. In the question posed to us by our subcontractor client, the team lead’s promise to pay a sum certain in return for our client’s promise of exclusivity would probably provide the necessary consideration to support a teaming agreement.

However, the foregoing does not answer the underlying question of whether the teaming agreement is actually enforceable as a contract. This is because there are other essential elements that must be met. In a case dating back to 2013, the U.S. District Court for the Eastern District of Virginia described the problem this way:

“For a contract [Teaming Agreement] to be enforceable, ‘there must be mutual assent of the contracting parties to terms reasonably certain under the circumstances.” Citation omitted. “Mere agreements to agree in the future [are] too vague and too indefinite to be enforced.” [1]

It is the failure of the teaming agreement to describe with reasonable certainty the essential terms of the agreement between the parties and attempting to defer those hard decisions until negotiation of a subsequent subcontract that is the more common deficiency in these agreements. The essential element of consideration can be satisfied in many ways, including payment in return for the promise of exclusivity, but if the agreement is otherwise vague and a “[m]ere agreement to agree in the future” then the teaming agreement will likely not be enforceable.

Negotiating essential terms like workshare, price, and duration of the subcontract at the teaming agreement stage is demanding, but consider what is at stake. It is often the case that your bargaining position is stronger at the teaming phase than it will be following contract award. This was the case with our client who was considered by the team lead to be so essential to its win strategy that it proposed to offer the client money in exchange for an exclusivity clause in the teaming agreement. In the situation described, the client was in the strongest position to negotiate favorable subcontract terms and was encouraged to do so but also cautioned that the negotiated teaming agreement would need to be enforceable.

The courts have not told us what an enforceable teaming agreement must include but we can identify some things that will enhance the likelihood of enforcement and we can also identify some things to avoid. Some things to include that can enhance the likelihood of enforceability:

• A draft subcontract as an exhibit which includes essential terms and conditions including workshare, price, and duration;
• A statement that upon contract award, a subcontract will be awarded and will include the terms and conditions of the attached draft;
• An exclusivity provision; and
• Language that clearly states that parties to the teaming agreement intend that it be an enforceable and binding contract.

Common things to avoid:

• Language that suggests no binding commitment on the part of either team member;
• Language that permits the team lead to unilaterally terminate the agreement;
• Language that essential contract terms, including consideration, are subject to future negotiation;
• Language that the agreement will terminate if subcontract negotiation is unsuccessful; and
• Language that allows a party to unilaterally withdraw.

Service contractors are motivated to enter teaming agreements for differing reasons. Sometimes it is simply the desire to establish a business relationship with a partner with no goal other than to establish that relationship and to thereafter pursue opportunities as a team – good faith and fair dealing assumed but not necessarily binding. Other times there is real work and there are concrete business interests at stake. In these situations, a binding and enforceable teaming agreement can be essential to protecting your interests and the teaming agreement needs to get the same attention that you give to negotiation of a binding subcontract.

If you have questions or need assistance with the subject matter discussed above, please contact MWL Partner J. Patrick McMahon.

[1] Cyberlock v. Consulting, Inc. v. Info Experts, Inc., 939 F. Supp. 2d 572 (E.D.Va. 2013)