In CGI Federal Inc. v. FCi Federal, Inc., on June 7, 2018, the Supreme Court of Virginia affirmed the decision of the Circuit Court of Fairfax Virginia that teaming agreements are agreements to agree in the future with regards to future subcontracts, but are enforceable contracts as to the activities required pursuant to the submission of the proposal. CGI Federal Inc. (“CGI”) and FCi Federal, Inc. (“FCi”) (which in the interim was acquired by PAE, see here) entered into a teaming agreement to pursue a federal government contract. Essentially, there were two parts of the teaming agreement: (1) the effort the parties agreed to perform to get the federal government contract, and (2) the “potential” future subcontract if FCi (the prime small business contractor) was awarded the contract. Once FCi was awarded the prime contract, it failed to enter into a subcontract with CGI that reflected the terms set forth in the teaming agreement, and CGI ended up suing and losing.

The Court, in looking at the language of the teaming agreement, decided that the effort for the subsequent subcontract did not contain enforceable obligations based on the actual language of the teaming agreement. Key to this determination was language such as: “[s]ubject to the final solicitation requirements …;” an agreement by the parties to “enter into good faith negotiations for a subcontract …;” expiration of the teaming agreement after 90 days if the parties could not agree on the terms and conditions of a subcontract; conditions precedent to the award of the subcontract such as the award of the contract to FCi; the approval by the government of CGI as a subcontractor; and, the effort to be performed in the awarded contract had to include CGI’s proposed work effort. In another section of the teaming agreement, it stated that the subcontract was subject to the mutual agreement of the parties with key elements of the final subcontract – statement of work, financial terms and other subcontract provisions. The Court also noted that FCi could not have relied upon the teaming agreement to force CGI to perform work as a subcontractor. Thus, given that the portion of the teaming agreement related to the subcontract was merely an agreement to agree in the future, there was no recourse for CGI.

Conversely, the Court found that there was a valid contract for the “parties’ relationship during and after the bidding process.” However, even though a jury had returned a verdict that FCi had fraudulently induced CGI to enter into the teaming agreement (which verdict the court vacated), the terms of the teaming agreement were still applicable. Since these terms precluded any recovery for lost profits or the costs incurred for preparing the proposal, CGI could not recover anything.

For more information, contact MWL Counsel Jody Reed.